Why The Financial World is On The Brink of a Data Revolution

It’s no secret that the increased prevalence of mobile devices, online banking, and data analytics, set off an explosion of digital personal finance management (PFM) tools. Today, there are a plethora of easy-to-use products that leverage technology in order to help track finances, manage budgets, and increase credit scores. These tools have torn down many of the barriers that prevented users from engaging with, and taking ownership of their finances. They’ve made it easy for consumers to monitor and track multiple aspects of their financial lives. While many consumers have leapt at the opportunity to take a more active role in managing their finances, some haven’t yet taken advantage. By 2020, the amount of data on the planet will have increased ten-fold according to a report by IDC. This represents both challenges and opportunities for banks as we approach the new frontier of personal finance management. The sheer quantity of data will change the way financial institutions need to think about offering PFM tools to their users because it can’t be the general tips and tricks like before. It has to be personalized to every user’s specific situation. Another one of the big issues yet to be addressed with existing PFM tools is how to foster regular engagement. Most experiences today push tons of data at the user but still require the consumer to be proactive about actually managing their finances. We need a new way forward. Consumers generally don’t enjoy managing their finances — they often find it to be a chore and a cumbersome experience. So if financial institutions want to create regular consumer touchpoints, they need to create tools that lower the bar to engagement and provide a more dynamic, personalized experience. The challenge with most existing tools is that they tend to push basic financial information to consumers but they won’t stand a chance in the future where data is abundant. Solutions of the future will have the potential to be a powerful way to attract new users, engage existing ones, and boost loyalty due to the fact that they have determined a way to leverage big data to their advantage. These new tools have figured out a way to push users with specific notifications that pertain to their specific financial situation. Aite Group’s recent survey indicated that the customers with “the most comprehensive use” of PFM have higher levels of engagement with their finances than those who just rely on their monthly bank statements. Nearly one in two U.S. consumers would like their bank or credit union to give them a single view of all their financial accounts in one place, and, of that, 56 percent would be most likely to use PFM tools from their primary bank or credit union. Therefore, financial institutions stand to gain tremendously by advancing development of smart, effective financial tools. Right now, many tools deliver the same general advice and insights to everybody — spend less on food and drink, save more for retirement, to put it simply. However, every individual has unique financial needs and manages their finances differently, so this general information is not particularly useful. The thinking here is similar to dieting — while making the right choices can involve huge amounts of discipline and willpower, a plan that is tailored to you and the feeling that you are making progress towards milestones are strong motivators. For financial tools to succeed and actually be used by consumers in the future, they need to become more predictive and much more personalized. Due to the explosion of financial data that has been sourced over the last decade, future finance apps will be able to know when consumers paid their bills, if they are carrying any debt, and notify them when the best time is to apply for a loan. These curated, user-specific recommendations not only will help users stay engaged with the service but will also make managing finances easier than ever before. Ultimately, these tools should be able to learn from user behavior and predict how they should respond to different kinds of motivation. For example, future financial apps should notify you before you splurge on a vacation or repeatedly buy that daily $4 cup of coffee because by foregoing those expenses and repeatable habits, you might get closer to the down payment on a car. In this case, a well-timed nudge has a powerful effect. The key is anticipating rather than reacting, and rewarding rather than warning. While there is still a long way to go, the business opportunities for PFM have not gone unnoticed. Fintech startups and established financial services firms alike are starting to rethink financial management in exciting new ways, like offering automated savings transfers or providing a holistic view of how everyday spending affects a budget. And by implementing comprehensive digital financial services that give customers a single view of all their accounts, retail banks can increase customer loyalty by as much as 5X. Better digital financial management tools that harness personal data, automation technology, and behavioral science to deliver predictive and personalized solutions that help consumers make better fiscal choices have limitless potential. They not only benefit consumers, who are more effectively able to manage their wealth, but also financial institutions, which can carve out a stronger role for themselves in their customer’s financial lives. Would you use this next generation of predictive and personalized digital financial management solutions? Would you find it helpful in managing your finances? Looking forward to your thoughts in the comment section below.