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Does PFM implementation have a ROI?

Personal Finance Management (PFM) is one of the hottest topics for banks today. Some of the banks are searching for the best vendor while others have already implemented PFM. Several banks are evaluating the returns from PFM implementation. Here, I would like to help them with some ideas how to quantify the return of a PFM implementation.

Today it is clear that customers do want PFM features. Just take which has nearly 8 million users. What is even more interesting, that more than 90% of the users say they have changed their financial habits as a result of using the service!

HelloWallet is another example, where users are willing to pay almost 9 USD per month for this service.

The need from the users for PFM is obviously here. What can a bank win if they offer PFM for their customers?

Higher customer retention

A study made by Gartner Research in 2006 presents that the cost of acquiring new customers is about five times higher than the rate of retaining existing ones, and those new customers are unlikely to be as profitable as expected. Although, the cost of acquiring a new customer varies country by country, it is averaged around 100 – 300 EUR per retail customer.

According to the PFM vendor Lodo, the annual member retention rates are 98% among those users who used PFM. This is higher than the retention rate for those customers who did not use PFM. If PFM helps reducing the customer attrition ratio only by 1 % point per year, it is already a remarkable saving for the bank.

Defending the mostly visited communication channel

The independent services, such as or HelloWallet could be a big threat for banks: if people start using these kinds of services, they will find less need for their banks’ online banking services. As a result, less customer contact would lead to a decrease in banks’ sales opportunities. This is a disaster in these times when most banks have to reduce their branch network. Therefore, PFM keeps users at the bank’s online channel offering the bank an opportunity to communicate with its clients and for cross-selling.

Longer customer lifecycle

PFM can be used for an extended lifecycle management with a customer. The value of the extended lifecycle management is not only on the customer’s side but on the bank’s side: this ensures that the student, who has a student account with the bank, will take his first mortgage here, and after buying the first flat, he can start making investment with his very first bank. This factor is very important since the #1 reason for switching banks is a shift in the life circumstances.

Direct revenue generated by PFM

If the bank offers useful PFM services, the customers will be more satisfied, and will come back to the online channel of the bank more often – this results an increased number of transactions. Besides transaction fees, PFM users generate more revenue by owning more financial products. Lodo says that PFM users own more accounts than those customers who do not use PFM.

Furthermore, banks with PFM usually see an increased usage of electronic payments at those customers who use PFM regularly – because these payments are categorized automatically.

Customer insight

PFM data offer a great customer insight which help in targeting the offers more precisely. A common experience from the online world is that general banner advertisement’s performance is very poor. However targeted ads perform very well – this is the only way for banks if they want to sell online successfully.

Building a business case for a PFM implementation is a complex task. However customer acquisition cost, conversion rates, transaction fees, customer attrition rates are exact figures which can be a solid baseline for calculating the return on this investment.


Comments: (6)

A Finextra member
A Finextra member 22 March, 2012, 19:55Be the first to give this comment the thumbs up 0 likes

At one stage I thought PFM was going to be big. Then I realised that every implemented still required too much effort from the customer.  Who can be bothered tagging transactions, setting up goals etc?  The answer is the average every day bank customer can't.  Yes, PFM is great for a certain segment, but until banks/vendors improve the capability significantly it will continue to stagnate with the mass market.

A Finextra member
A Finextra member 22 March, 2012, 20:56Be the first to give this comment the thumbs up 0 likes

Michael, I agree. The future is the zero-effort PFM, which tags (almost) everything automatically. People do not want to work with PFM, but they want to see the results.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 March, 2012, 16:14Be the first to give this comment the thumbs up 0 likes

While I agree with most areas for ROI, bank PFMs perhaps face one challenge far more acutely than Mint and other independent PFMs, and that is, the reluctance of customers to share their Internet access credentials to multiple financial products from multiple banks with one PFM-providing bank. (Personally, I might trust my multibank credentials with one bank compared to an independent startup, but I don't know if mine constitutes majority or minority behavior.) 

I recently noticed that HDFC Bank, India's second-largest private sector bank, recently discontinued its Internet Banking-integrated PFM offering called OneView and couldn't help wondering if its decision is a reflection of its failure to surmount this challenge.

Of course, I recognize that this challenge is only applicable in case of customers who bank with multiple banks for different products - not sure how big that segment is.  

A Finextra member
A Finextra member 26 March, 2012, 13:36Be the first to give this comment the thumbs up 0 likes

Excellent post. Financial institutions have much to gain by embracing a strategy that includes PFM. And while increased retention and share-of-wallet are important, FIs can also use PFM in support of their branding efforts. It allows them to position in a more relevant fashion.


A Finextra member
A Finextra member 28 March, 2012, 10:10Be the first to give this comment the thumbs up 0 likes

@Ketharaman: Thank you for your comment! Yes, account aggregation is something which should be offered by a third party provider. Independency is really important here. However PFM is more than aggregating the accounts into one view, and those functions fit to a bank’s online service very well.

@Bryan: Thank you for the point you have added! I agree, branding is very important, and PFM is very useful in that.

A Finextra member
A Finextra member 29 March, 2012, 09:22Be the first to give this comment the thumbs up 0 likes

A great post! The key for the ROI is the usage uptake of PFM. In order to achieve a high customer engagement, the tool has to provide an excellent user experience – in other words: simplicity, simplicity, simplicity. This is the very basic requirement toward PFM tools. The more effort needed for learning PFM, the less clients will really start using it.  User experience is the first, and the functionality comes after.

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