RFi Group Insight - UK: Budgeting for Financial Management tools

For many consumers, managing their finances such as budgeting and tracking spending has long been a time consuming and tedious task, so much so that 40% of consumers don’t bother at all, according to RFi Group data. Among those that do take steps to manage their finances, 71% still rely on tools such as pen and paper or excel to do this. With personal financial management either avoided or done using tools that seem almost archaic in the digital age, it is not surprising that several FinTechs, such as Bean, Yolt, and Moneyhub, have developed tools to help consumers manage their finances.

This Personal Financial Management (PFM) tools, tend to be either web or app-based services and offer a range of features that help consumers manage their finances, such as the ability to create and track budgets, set savings goals, and categorise spending. So, the question becomes, what role, if any, should traditional financial institutions play in the PFM revolution? RFi Group data shows that PFM tools represent a huge opportunity for traditional financial services providers, with consumers interested in such tools, and prefer them to be provided by existing financial institutions.

These factors, along with the beginning of the open banking revolution, meaning the time is now for traditional financial institutions to act and begin offering PFM tools. The first reason traditional financial institutions should be
considering offering PFM tools is that consumers are starting to demand them. RFi Group data from the UK Digital Banking Council shows that almost 1 in 5 consumers find the idea of a PFM tool extremely appealing (8+/10 on a scale of 1 to 10), with this increasing to 29% among Millennials (those aged 18-34).

This demand is already flowing through to product choice, with 38% of Millennial savings account holders considering budgeting tools very important to their choice of a savings account. The interest in PFM tools seems to be driven by the fact Millennials are struggling to get on top of their finances, with 1 in 10 Millennial savings account holders saying they are unable to meet their savings goals because they have trouble budgeting. With consumers, particularly younger consumers, showing signs they are struggling to manage their finances and showing a willingness to use PFM tools, developing such tools would allow existing financial institutions to offer a valuable service that simplifies consumers lives.

These tools would be particularly well received if they enable consumers to create budgets for different spending categories, set and track progress towards savings goals, or if they can make suggestions on where consumers could cut back spending, with these PFM tools features the most appealing to Millennials.

Traditional financial institutions are in a unique position as consumer demand is targeted more towards them. Seventy-five percent of those who find the idea of a PFM tool appealing would want such tools to be offered by their main bank, compared to only 10% who would prefer the service to be offered by a new third-party provider. This is largely due to trust, with 68% of consumers trusting that banks can keep their personal information secure, compared to only 28% for new technology companies. Banks and other existing financial service providers, therefore, have a massive opportunity to use this trust advantage to offer PFM tools and play an even more integral role in consumers financial lives, deepening customer relationships.

Offering these tools could also have the added advantage of preventing consumers from going outside their existing providers for PFM services and reduce the risk that new FinTech’s will be able to disintermediate traditional providers. Offering PFM tools will also help traditional financial services providers assist consumers who find themselves in financial difficulty by assisting them to save, budget, or manage their spending. This could help reduce loan defaults and help satisfy regulators that financial institutions are lending responsibly and taking steps to support those in financial stress.

Finally, the introduction of the new open banking regulation means PFM tools can now offer better service and functionality than ever before. What once would have required consumers to input their own data can now be done using APIs linked to various accounts, simplifying the process of financial management for consumers. RFi Group data shows that 27% of consumers find aggregator tools that combine information for financial products held across institutions appealing, with this appeal increasing to 37% among Millennials, a much higher level of appeal than currently exists for PFM tools. This shows that tools that help consumers manage their finances will increase in popularity once they start making use of open banking, and traditional financial institutions should be at the forefront of this development.

As can be seen, consumers are showing strong demand for these products and want the providers they are currently using to offer these tools. At the same time, open banking regulation means PFM tools can be more valuable to consumers than ever before. When these factors are considered along with the potential benefits to financial institutions of offering PFM tools, including deepening customer relationships, helping consumers in financial stress, and defending against new FinTech providers, it is clear that traditional financial institutions should be focused on offering PFM tools.

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