Latest ‘Tools Of The Trade’ For Banks
Put techno spin on managing finances

SPECIAL SUPPLEMENT: Tools of the Trade - Autumn 2010 | By Gina Lauer

THERE'S A LOT to attract a customer to their bank's website these days. They're easing into online banking and discovering the convenience of bill pay tools. So what's the latest? Some industry experts say that 2010 is the year of personal financial management (PFM) tools, designed to give customers a complete view of their finances, help them budget, save, and (to a certain degree) invest.

Kevin Lynch, 1st Mariner Bank

“The consumer wants it. That's what we see over and over again in our data,” says Mark Schwanhausser, senior analyst covering multi-channel financial services at Javelin Strategy & Research in Pleasanton, Calif. “The consumer wants to simplify their financial chores.”

A way to set goals

PFM tools, the experts say, give customers a holistic view of their financial lives. They also give customers a way to set goals: save for a big purchase, pay down debt, or put away money for a child's education, for example. Users can see where they're spending money (mortgages, credit cards, groceries, or dining out) and get alerts when their accounts dip too low.

In August, 1st Mariner Bank in Baltimore launched its PFM service called Mariner360, which uses Geezeo's white-label PFM suite of tools. “We felt like this is a service that we should provide to them (bank customers) to help them manage their whole financial life,” explains Kevin Lynch, senior vice president, e-commerce at the $1.39 billion-asset bank.

“Consumers’ demand for this kind of service has changed dramatically in the last couple of years,” Lynch says. “People seem far more interested in managing and understanding their whole financial picture, not just their checking account.”

Lynch says 1st Mariner has about 11,000 active online customers monthly from a base of about 16,000 online banking users. “So it's a pretty active group,” he notes.

When interviewed in early October, Lynch said about 700 online banking customers had signed up for Mariner360 since the August launch. “Which I think is a pretty decent penetration,” he adds.

“We did a fairly significant amount of promotion,” Lynch says. There were—and still are—banner ads on the bank's website that talk about some of the features and benefits of the service. The bank also sent out a series of four e-mails that included an introduction, information about the alerts function, using the cash flow calendar, and setting goals.

“We did an educational effort because you don't know what might drive somebody to use something like that.”

What did they discover?

“We learned that it really was a need that our customers had,” he says. “There have not been a lot of phone calls, which I assume means it's working the way it's designed to.”

Building better customer relationships

Results of a report from Aite Group, LLC (Boston), show that PFM has provided users “greater control over their financial lives, enabling many to save money and reduce the amount they pay in overdraft fees and interest.” The study was based on two surveys: one of PFM users conducted in January 2010 and one of bank and credit union executives conducted from October 2009 to January 2010.

The report also concludes that PFM enhanced consumers&srquo; relationships with the banks and credit unions. The survey revealed that one-quarter of all PFM users admit to being less likely to switch their banking relationship as a result of using PFM. Among those who use PFM on their bank's or credit union's site, the percentage goes up to 30 percent.

Banks and credit unions are in a natural position to offer PFM to customers.

“They have more trust with a consumer,” says Schwanhausser. When a Javelin survey asked, “Who do you trust more to protect your personal information, your bank or a web PFM?” banks were found to hold a 2-to-1 advantage, he says.

Increased customer preference for online banking could also spark broader interest in bank website-based PFM. A recent American Bankers Association survey (conducted in August 2010) shows that for the second year in a row, most bank customers (36 percent) prefer to do their banking online compared with any other method. Last year, the survey showed 25 percent of customers favored online banking.

“Online banking is the future of banking as more Generation Y-ers enter the marketplace. This means the industry will need to continue investing in technology that supports online banking because consumers see it as quick, convenient, accurate and safe,” said Nessa Feddis, ABA vice president, senior counsel and retail banking expert, in a press release.

Survey results showed that the popularity of online banking was not exclusive to younger consumers: It was the preferred banking method for all bank customers under the age of 55.

The use of online financial management tools is on the rise as well. According to Intuit Financial Services’ 3rd annual Online Financial Management Study released in October, more than one-third of consumers (34 percent) now use online tools provided by their financial institution to manage their finances. That is a 7 percent increase from 2009.

The Intuit study also gives some insight into what online banking customers do—or want to do—through their financial institution's website: 83 percent of consumers track account balances, 60 percent pay bills and transfer finds, and 56 percent check the accuracy of transactions.

In addition, 84 percent say the most important feature is the ability to pay bills and manage all their finances in one place, regardless of where their account is held—up from 62 percent in 2009.

Javelin's Schwanhausser says that at this stage, “PFM is still a relative handful of companies out there. It's not something that consumers have wide access to or wide knowledge of,” so the adoption rate is fairly low.

The differentiation between online banking, bill pay, PFM and even some social media appears to be blurring as technology providers find ways to ties these segments into one package—or page. In a growing number of financial institutions, PFM tools and widgets will no longer be found on a separate website tab or link, but show up as an integrated part of online banking.

Intuit Financial Services’ PFM solution for financial institutions is called FinanceWorks. Intuit also owns the consumer PFM site Mint.com, which it purchased in 2009.

Why get involved in the different markets?

“We get asked that question a lot,” says Tobin Lee, senior leader, corporate communications, Intuit Financial Services. “And the reality of it is, there are a lot of different customers out there who like to do things in different places.”

FinanceWorks, powered by Quicken, was launched about two years ago (September 2008). “From that time we went from a single financial institution to 500 financial institutions that are live on it.” Of the 4 million customers who have access to FinanceWorks through their institutions, about 800,000 have signed up to use it.

What do online banking customers use the system to do? According to Al Ko, senior vice president, consumer solutions for Intuit Financial Services, the main reason is to see their balances, second is to see their transaction history, third is to transfer money between accounts, and fourth is to pay bills.

With that in mind, Intuit revamped its PFM service recently to allow online banking customers to view their accounts and tackle the above-mentioned financial chores all from one page.

“We also know ... they love seeing their entire financial picture, not just from the bank they happen to log into, but across all accounts, all in one place,” Ko says. And typically, consumers have about a dozen account relationships with institutions and financial firms.

Information from all those various accounts is categorized so that people can see where their money is going: dining out, groceries, utilities, for example. Users also have the ability to change or personalize categories.

“Years of experience have shown us that if a user can't personalize a category, then 75 percent of people just abandon it. So that's a huge differentiator here between what we do and what some others offer,” says Lee.

Most bank customers (36 percent) prefer to do their banking online compared to any other method, according to a recent ABA study.

Jwaala, an Austin, Texas-based provider of the PFM application called MoneyTracker, as well as online banking services, is also making inroads in the bank/credit union arena. Andrew Taylor, chief technology officer, likens the company's technology to an iGoogle dashboard where customers can interact with their financial data and “move things around.”

Jwaala, formerly a CUSO (credit union service organization) of Amplify FCU in Austin, Texas, rolled out its PFM solution in 2007. It now provides online banking and PFM solutions to about 35 credit unions nationwide.

Taylor says Jwaala's search engine is particularly good at retrieving information. For example, a customer can type in “Costco over $500” and find those specific purchases. “They're not necessarily PFM tools,” he admits, “But they're next generation online banking tools.”

Bryan Clagett, chief marketing officer at Geezeo (Tolland, CT), says the company provides PFM services to one bank (1st Mariner) and about 10 credit unions. But he expects that number to grow. “We have a lot of noise coming from some very large financial institutions,” he says.

Geezeo provides an additional platform (included in PFM services) called “Community Answers” which is a white-labeled forum for online users to ask financial questions. Financial institutions can provide “resident experts” (a financial planner/investment advisor, for example) to answer questions posed by users—both bank and non-bank customers.

Prior experience working in a bank environment is viewed as a plus, as is experience working at a large broker/dealer, where insurance specialists often have to interact with other team members. Independent brokers, by comparison, are often less well-suited to working on teams.

“It's a very trust-based marketing approach,” says Clagett. “I'm not pushing a banner or a link, but bringing you into a conversation, getting you a little closer emotionally.”

He calls it a “non-threatening” sales approach. “I see that aspect growing dramatically, especially on the investment side and the insurance side.”

Clagett says leveraging these sorts of financial and educational tools along with social media “is what the future of PFM and engagement banking really is.”

How long does it take to incorporate the tools into a bank website?

Intuit Financial Services’ Lee says they have an automated implementation process. Once contracts are approved and signed, the process can take as little as one day, but usually averages close to a month “just because there are many things that need to happen at a financial institution.” A bank's marketing department plays a big role, too.

There are some other PFM innovations in the banking industry worth mentioning, too:

• PNC Bank in 2008 introduced its “Virtual Wallet,” an online—and mobile—money management tool that incorporates a “spend” account for everyday banking and bill pay, a reserve account for short-term saving and overdraft, and a “growth” account. It incorporates a financial calendar and alerts, as well as other tools. (It does not aggregate outside accounts.)
• Citigroup, Morningstar, and Microsoft are the backers of the recently unveiled Bundle (Bundle.com), a consumer PFM site that allows users to aggregate their financial accounts, track their spending, and compare their spending behavior to that of others.

How, then, might PFM impact investment programs and/or insurance divisions of financial institutions?

PFM, says Schwanhausser, is about giving the consumer control. “By giving control, you actually solidify your grip on the customer,” he explains. “When banks can help customers avoid financial mistakes, identify problems, make their chores easier, that institution becomes a place they want to continue to do business with.”

When banks can deepen their relationships with customers, it bodes well for other areas of the bank, too.

PFM tools also offer banks additional cross-selling and targeted marketing opportunities by drawing on data gleaned from customers' financial habits and budgeting behavior.

Banks can “identify which products would be meaningful to a consumer and which ones would not be,” Schwanhausser says.

Jwaala's Taylor has a similar view. “I think one of the things that we do and these PFM tools tend to do is make the end online banking area more proactive in terms of offering products and services if it looks like the [customer] needs something.”

He says many institutions' online banking sites look like a “clean room.” He agrees that “You don't want overkill, but you don't want to leave it desolate either.”

Intuit's Ko points to ways that banks can use the administrative capabilities in the FinanceWorks system to run campaigns that would appeal to select customers. They can choose a location, a time period for a campaign, select customers with external credit cards (with an APR greater than 15 percent, for example), and then provide those customers a link to a lower interest-rate card. To maintain privacy, customers' names are never shown.

Banks and credit unions are in a natural position to offer PFM to customers. ‘They have more trust with a consumer,’ says Schwanhausser.

Lynch says he has marketing capabilities through Geezeo's marketing platform integrated with its PFM system, but “we’ve chosen not to do anything at this point because we're still learning.” He says he wants to make sure “we're doing it the right way.”

Yet, he “absolutely” foresees using those tools sometime down the line. “As long as we do it in a tasteful and comfortable way—not making people feel like we’re bombarding them with offer after offer.” It's a fine line to walk, he notes.

The platform allows banks to create marketing segments based on demographic profile, types of financial accounts, and transaction data.

Investment and insurance programs will need to keep an eye on PFM and online banking as more sophisticated tools are added and customers' capabilities broaden when it comes to moving money, opening accounts, and purchasing products.

“We’re in exploratory conversations even with brokerages to offer FinanceWorks,” Ko says.

And Geezeo's Clagett noted that the company is developing a custom solution for the investment arm of one of its major credit union clients. “It’s more oriented toward financial planning, tracking mutual funds, and other investment products, and that will bump into the PFM solution as well.”

Schwanhausser expects to see more advanced features once the online banking/PFM platform is put in place. “That will include things like tying into your tax returns ... specialized tools for investment-oriented products and services that are aimed at higher-net-worth people or more of the investor type who’s in a different stage.”

‘An opportunity’

He adds, “There’s an opportunity for Silicon Valley to come up with unimaginable ways to bring this together so you have real-time, always on finances.”

How PFM software will ultimately impact the bank brokerage and insurance industry remains to be seen. But as financial tools start to proliferate on the Internet, financial advisors and investment program managers need to look at ways they might learn from and share in the data about consumers' online spending—and saving—behavior and habits.

Intuit Financial Services' Lee, quotes the often-heard mantra heard from IFS executives: “Online banking as we knew it is irrelevant because, frankly, people expect, need, and want more.”

Gina Lauer is a contributing editor of Bank Insurance & Securities Marketing. She can be reached at glauer@bisanet.org