Getting Personal

Financial management software takes account aggregation to new heights

By Karen Epper Hoffman

After more than two decades, electronic personal financial management software has come to (arguably yet another) crossroads.

What began as static money management software like Intuit Inc.’s Quicken and later segued into an Internet-based offering to online banking, is morphing into a more full-blown, dynamic account aggregation tool that can be accessed by mobile devices and used to more accurately allow banks and customers to analyze and capitalize on financial changes. The latest iteration of personal financial management (PFM) software “allows customers to manage their finances across financial institutions through account aggregation,” says Hilary Blackburn, senior vice president for product development and e-commerce for Cardinal Bank in Tysons Corner, Va.

“PFM software programs generally allow you to categorize expenses, create budgets, set goals, understand where you stand financially [and] maintain an online register,” she adds.

Through its PFM software, Cardinal Bank has offered its customers the ability to download into traditional financial management software like Quicken or Microsoft Excel since it launched its online banking in 2005. The $2.9 billion-asset community bank introduced Intuit’s FinanceWorks, an online financial management tool, in March 2011.

“The most significant changes we’ve made for FinanceWorks is to provide a snapshot of the spending chart on the home page and to display outside accounts on the home page,” Blackburn says.

Cardinal Bank is not the only community bank that has jumped on the online PFM bandwagon. More and more small- to mid-size community banks are embracing these money management tools as part of their online retail service arsenal—an offering that will potentially differentiate themselves from competitors. In September, Sheridan, Wyo.-based First Federal Savings Bank announced plans to offer its customers online and mobile PFM software tools from MoneyDesktop, a Provo, Utah-based software firm with more than 450 bank clients.

First Federal Savings was “ahead of the curve” when it first began offering PFM services in 2008, says Cheri Balkenbush, the $200 million-asset community bank’s marketing officer. However, the software has since become more common among banks of all sizes, she adds.

John Schulte, chief information officer for Mercantile Bank of Michigan, a $2.8 billion-asset bank in Grand Rapids, Mich., is excited about his community bank’s recent launch of PFM software, calling the software “the next generation functionality and user interface” for consumers. Like that of First Federal Savings, the PFM launch at Mercantile Bank was not the bank’s first online offering of such software.

More community banks (like their larger counterparts) are shopping around, looking not just for tools that can categorize finances for their consumers but those that can aggregate all accounts, that can analyze spending trends and allow for mobile access. Today’s PFM applications increasingly use colorful, easy-to-use and understand graphics to visually represent areas of a person’s budget that might need attention.

Changing market?

Despite PFM’s vaunted usefulness, it has yet to draw the majority of online banking customers. Out of 2,700 online banking customers at First Federal Savings, just 100 are using the software so far, says Balkenbush. Blackburn says that 4 percent of Cardinal Bank’s online banking customers use Quicken, and 17 percent use the bank’s FinanceWorks.

“Based on my experience, these are relatively typical usage rates,” Blackburn adds. (Balkenbush says that her bank is just getting geared up to do a customer training on its new PFM offering.)

Indeed, according to a 2011 report on PFM from the research and consulting firm Celent in Boston, only 3.8 percent of all online banking users are active users of PFM solutions at a bank or a nonbank site online. “Banks have been extremely slow to catch on to the PFM trend and have had difficulty understanding how the software fits into the online banking universe,” says Jacob Jegher, the author of the report. “A number of banks offer solutions, but they do not hold a candle to the products offered directly to consumers.”

The report claims that there are “several key reasons for the poor PFM adoption—technology hurdles (problems with account aggregation and auto categorization), user experience hurdles and consumer behavior hurdles.”

But the marketplace is changing. In terms of innovation, Schulte says, “there are more, stronger [vendors] than at any other time.” While he believes that PFM systems have not changed a whole lot in the past 20 years, since the days of Quicken in a box, new players, changes in older players and new tools are shaking up the software category.

Cases in point

In July, private equity firm Thoma Bravo LLC announced it would acquire Intuit Financial Services for about $1 billion so it could build a stand-alone company to sell bank technology to financial institutions. (Intuit kept its PFM site and its Small Business Financial Solutions unit.)

Meanwhile, PFM software took center stage in September at a Finovate conference, which featured presenters including SavedPlus, a mobile savings app that counts Yodlee as a partner; Yodlee, which showcased its new social financial application, Tandem; and the MoneyDesktop, with a presentation on its bubble budgets.

As PFM arguably enters its third generation—a place where it’s not just online access, but mobile access and usability that define success—the technology is really beginning to show its usefulness for banks as well as customers. For consumers, these software systems are offering powerful data-driven analytics that combine data from various accounts outside the bank in newer and more useful ways. For banks, these systems provide complete marketing intelligence of consumers’ financial activities, habits and relationships.

“This is where the value proposition for the community banks starts to take off,” Schulte says.

Karen Epper Hoffman is a financial writer in Europe.