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Personetics Guide

What Are Some of the Common Problems with Traditional PFM

Many financial institutions have implemented some form of a personal financial management (PFM) tool with their digital banking application.  

The value proposition for PFM is clear. If a bank chooses the right PFM solution, it can offer a variety of capabilities that help their customers monitor their personal finances, manage their money, and improve their overall financial well-being. In return, when customers engage with these PFM capabilities, they become “stickier” – more likely to remain loyal to their financial institutions and more likely to add additional accounts and products.  

The key, though, is the word “if.” 

Unfortunately, not all PFM solutions are created equal. What many people think of as PFM are,  in reality, only the traditional versions, that have multiple flaws.  

The Problems with Personal Financial Management 

The first generation of PFM tools encountered a big limitation: not many customers adopted them.  

Here are a few reasons why the early wave of traditional PFM offerings often failed to achieve ROI for banks:   

Looking backward instead of forward: Many of the early-stage PFM solutions were focused on showing customers what had already happened. 

They could tell customers, for example, how much they spent in the previous month, or drill down a little deeper and tell them how much they spent in a category, like gas, or groceries. The data analytics capabilities of the early PFM solutions were limited to looking at past transactions, not real-time data or forward-looking proactive advice and insights.  

Showing customers a snapshot of their previous spending, can be useful for some purposes, but it’s not nearly as helpful as showing them what’s happening right now in their financial life – or, more importantly, where they are heading financially in the future.   

Hidden within the mobile app: Many PFM solutions have not been prominently featured within the digital banking app. When a PFM tool gets relegated to a hard-to-find submenu, or when its insights are not prominently displayed and shared with the customer, it’s easy for customers to forget about them – even they’re even aware of their existence in the first place. To drive business impact, PFM solutions need a more visible location within the digital banking app UX design, with push notifications and engaging content to command customers’ attention.   

Lack of relevant advice: Just tracking people’s spending or showing a budget based on spending decisions that have already happened is not the most compelling way to drive engagement. Until now, most PFM solutions have not offered personalized advice that helped to shape customers’ financial futures and improve customers’ financial wellness in a meaningful way. Instead, PFM solutions need to be proactive and forward-looking, based on real-time customer financial transaction data. They need to not just show customers what’s going on with their finances, but to prompt them to take actions that will improve their financial well-being. PFM should show customers how to set financial goals and how to change their behavio, with helpful nudges and advice, to strengthen their financial wellness. And the experience should feel frictionless for the customer, lessening their cognitive load and the burden of everyday financial decision making.   

Looking at the past is not good enough. Hiding a PFM tool within the banking app will not drive results. Telling a customer what’s happened in their finances is only partially helpful, at best.  

Instead, PFM needs to be at the center of the customer’s life. It needs to alert them to important financial events and opportunities that are coming up and it needs to offer advice – in the right place, at the right time – that helps customers take action. If your bank has a PFM that can do that, then you can actually drive significant impact for your customers and for your institution.    

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