Personal Financial Management (PFM) solutions have experienced another phenomenal year. Since our last posts on PFM adoption trends and the reasons why banks choose PFM, several leading banks including Deutsche Bank, Allied Irish Banks, Consors Bank, and Hellobank! continue to join the PFM race.

Though most of us would agree that PFM is the logical next step for an online-banking-enabled institution, bankers themselves are constantly questioning the true value of PFM. The same doubt surfaces again and again:

“What is the ROI of PFM? No promises please, show us numbers… prove it that it works”.

This is a valid concern, considering that PFM implementations have produced very mixed results. Some banks have adopted PFM quite successfully. Others experienced results that fell short of their expectations, leading to overall disappointment with the tool.

This uncertainty sparked our quest to gather as much evidence as possible to support or reject the thesis that PFM enables a more robust ROI...

To do this, we analyzed a host of PFM implementations, namely those of BBVA, Barclays, Bank of Montreal, PostFinance, ING Netherlands, ABN AMRO, Rabobank, Islandsbanki, Alior Sync and First National Bank of Tennessee. We also examined the findings of well-known research organizations such as Forrester, Aite Group and Javelin Strategy & Research, concentrating only on gathering hard data. Mere promises about PFM’s ROI were left out. 

The final analysis indicates that PFM offers 3 clear areas of benefits:

1. Increased customer satisfaction
2. Improved customer loyalty and retention
3. Direct revenue generation and cross selling opportunities

Now let’s look at the concrete results that various banks have managed to achieve with PFM:

1. Increased customer satisfaction

• 76% of users say they have better control over their finances thanks to PFM
• 72% of users say they finally know where all their money is
• 66% of users say PFM has helped them see how they can improve financially
• About 41% say they save more money due to PFM
• 28% of PFM users are paying fewer late fees on their credit cards and 23% are paying fewer overdraft fees
• Over 80% of users are “pleased” or “highly pleased” with PFM
• 88% of users say they will use PFM regularly in the future
• 9 out of 10 users say they would recommend PFM to others

2. Improved customer loyalty and retention

• Annual customer retention rates are 98% among PFM users
• 63% of consumers say PFM will strongly increase loyalty
• 25% of PFM users say that they’re less likely to close their accounts and switch to another bank.
• Some banks have seen a reduction of up to 50% in closed accounts following the introduction of PFM
• PFM at least doubles the time spent in online banking
• PFM users visit bank’s website twice as often

3. Direct revenue generation and cross-selling opportunities:

• PFM users increase deposits over time
• Active PFM users increase their total number of accounts (current, savings, credit card) by on average 19.4% after using PFM for one year
• PFM data offers deeper customer insights, which inform greater personalization of bank’s offers.
• PFM users on average opened 4 times as many financial products as customers without PFM
• Revenue from the average PFM user grew 5.5 times faster than customers without PFM

Especially noteworthy are the research findings of Forrester, who concluded that in 4 years, mid-sized banks generated over 10M USD in revenue with the help of PFM. This revenue came from 3 main sources:

1. Cost savings from additional online banking usage
2. Revenue retained by increased customer retention
3. Revenue generated from additional cross-sales

Taken together, these findings indicate that PFM indeed offers a compelling value proposition and can provide very robust ROI. However, not every bank has been able to tap into this potential.

Here are some of the main reasons that can hinder banks from achieving optimal results:

1. Lack of clear PFM objectives and strategies
2. Weak PFM product development strategy
3. Not doing enough PFM marketing and end user education
4. Missing the right analytics and data management infrastructure to support the tool and exploit PFM data
5. Lacking a long term PFM development plan

Final verdict: PFM can indeed deliver a robust ROI. But before questioning that possibility, banks should start by developing the right strategies to exploit PFM’s full potential in the first place. In other words, it is not a question of if but how to leverage PFM to generate that robust ROI.