Home » Personal Financial Management Tools: What You Need to Know
Decades ago, the probability of managing your finances electronically without having to set a foot in a bank, would have seemed preposterous. While many clients needed such centralized control then, they can have it today by accessing the Personal Financial Management (PFM) tools offered by their bank or building society.
PFM for Banks & Financial Institutions, has, however, come a long way in the last decade. Taking full advantage of cloud technologies, Artificial Intelligence, and related analytics technologies to provide both the client and the financial institution with real-time customized data-based solutions. Personalizing the platform, for each client, based on their curated financial data.
The motivation behind PFM Tools
Although managing personal finance might come easy to some, others might struggle due to their financial situation being far more complex than one or two bank accounts, alone. Many clients have various bank accounts with linked financing products such as vehicle or asset finance and even investment accounts. PFM tools can provide a single access platform for clients to get a holistic view of their finances at a single glance. Another motivation for clients to utilize these tools is that the financial institution can provide the client with real-time guidance to reach their financial goals.
Improving the client’s overall financial health is beneficial to both the client as well as the financial institution. By tracking the spending of the client, the institution can educate the client about their spending habits, warning them about possible overspending well ahead of time. This practice of analyzing spending habits also affords the financial institution the ability to flag potentially fraudulent activity on the client’s account. Clients can also be informed about new products that they might qualify for based on their income and monthly spending habit. Finally, clients can be allowed to receive market indicators plugged right into their PFM application.
Use Cases for PFM Tools
Across the financial industry, three main use cases exist for FPM tools. The first is budgeting and short-term financial planning. These PFM tools provide clients with the capability to plan their spending by computing spending trends and providing accurate predictions about reserve capital.
The second use case for PFM tools available in the market assists clients to make sound investment decisions. This is done by allowing clients to set up saving goals with interest projections as motivation. Some tools are focused on more experienced investors, allowing them to manage their portfolios without direct contact with a stockbroker.
Wealth management is the third PFM use case. By amalgamating the two use cases and displaying real-time data about the client’s net worth. The client is presented with a dashboard with all their accounts, investments, and liabilities. From the dashboard, the client can manage and monitor their entire portfolio with little to no help from an actual employee of the financial institution.
Why banks should invest in PFM Tools
The early adopters of FPM tools have been financial institutions that have a digital footprint alone, such as Neo banks, for example. Their client base has the distinct advantage of benefiting from detailed analytics and dashboard-based information retrieval. Traditional financial institutions have caught up somewhat in the last decade even though the adoption rate by their clients has been low. By improving the complexity of the insights provided by these PFM tools traditional financial institutions are adding value and are therefore gaining valuable market share in the financial sector.
Characteristics of outsourced PFM Tools
While some institutions would want to build their own PFM tool from the ground up, there are other solutions available. Outsourcing FPMs to cloud vendors have become a popular option for smaller institutions that would like to offer this kind of service to their clients. The value chain is sped up considerably this way and the financial institution does not need to employ an expensive specialist to build the platform.
By giving clients granulated control over their finances through real-time analytics and BI, they can improve their day-to-day financial decisions. This enhancement in service delivery improves both the reputation of the financial institution as well as the value proposition to its clients, saving costs and streamlining financial product consumption.