Once touted as a disruptive force in retail banking, the first generation of personal financial management tools were no more than clumsy apps with little to offer. Can PFM 2.0 turn the tide? In preparation for our upcoming webinar, we’ve asked Bruno Macedo, head of delivery implementations at five°degrees, what he thinks is next for money management apps – and how to transform them into a win-win for banks and customers.

Do you think traditional personal financial management tools have failed?

Yes and no. Next-gen tools such as robo-advisors that provided people with data analysis and forecast worked quite well for those with a decent level of financial literacy. I’m talking about consumers who’d used some sort of financial management tool before, like Microsoft Money or an Excel sheet to budget, to track their spending and set savings goals. I wouldn’t say they were a huge success but did well enough. 

PFM tools have failed those who needed them the most. Consumers with low to no financial literacy, who struggle with balancing their budget and lack funds for savings, emergencies, retirement or their children’s education. These are the consumers who end up overspending and getting into bad debt, often because they don’t plan and don’t do their research. They’re also the most vulnerable when a financial crisis hits.

What do you think consumers expect from personal financial management tools?

Customers want to feel empowered. They expect banks to keep them in the loop about what’s going on in their bank accounts, like receiving notifications when their balance drops below a certain level, their salary comes in or they get charged for something unexpected. 

At the same time, they also want to have a 10,000-foot view of their finances to see if and how their spending habits change. This is where financial analysis, including spending summaries and forecasts, comes into the picture. For instance, showing users how much money they’re expected to save yearly at their current rate of spending and income and spotting if they go off track.

Proactivity is also key. This goes both for alerting customers if a transaction looks suspicious and for letting them set alerts up according to their preferences. For example, if they’re looking to buy a new car or put some money away for retirement, banks can message them about new products or service offers that might be relevant to them. 

This way, PFM tools can pave the way for providing valuable, personalised insights for financial planning.

One thing to keep in mind, however, is this: customers need to sign up for these tools “mentally”, too. Downloading an app, completing your registration and connecting your bank accounts is only half the story. You must also have an idea of what you want to get out of it – and banks must be able to cater to these needs. Most low-literacy customers are probably looking for a “personal trainer” for their finances who would help them break bad money habits. Savvier users, however, are more likely interested in forecasting and planning features.

The digital champions of the future will be those who can take advantage of PFM capabilities and customer data.
Bruno Macedo, Head of delivery implementations at FiveDegrees

What about banks? What can they expect from PFM tools?

Cognitive benefits, above all. A better understanding of people’s needs and an improved ability to respond to them proactively. If a bank learns that a customer, say, is expecting a baby, they can advise them on what loan to take out for buying a bigger house or furnishing a nursery. Meaning more opportunities to cross-sell, develop better financial products or create entire vendor marketplaces. What we’ve seen is that the digital champions are those who take advantage of PFM capabilities and customer data.

How can incumbents compete with apps like Mint or YNAB?

Traditional banks have two major advantages over challengers: their brand and data. People are inclined to trust incumbents with their salaries and have a strong emotional connection to them. When they think of their bank, they often associate them with safety, privacy, assurance and so on. This trust means that incumbents have immense amounts of customer data which gives them a leading edge in data analysis and forecasting. They can offer customers better advice based on cluster analysis and information from a huge pool of peers with the same behaviours, income level, education, marital status, number of kids and what have you. Not to mention that they have a bigger portfolio of banking products and services to sell.

How can banks make second-generation PFM tools a success?

First and foremost, they must make a mental shift towards data-driven, customer-first thinking. It’s time they recognised that customers all have different needs, goals and plans for the future and developed tools and services to respond to these. To create value, they must focus on constantly analysing user data, both on individual and cluster level.

Banks have to show customers the rewards they get in exchange for their data, such as more precise forecasts, expert advice, better financial decisions and eventually, improved financial fitness. They also need buy-in for the idea of data-driven banking internally, and how it can help the organisation boost efficiency and drive customer satisfaction and loyalty.

But there’s more than just financial benefits to gain here. 

Looking out for the interest of low-literate customers is critical to building a more responsible and resilient financial system and society. Plus, money management tools have a direct impact on the entire financial services landscape. At five°degrees, for example, we’re working on a new core banking solution that helps banks meet this rising demand for new-gen PFM tools. If used right, PFM 2.0 can be a game-changer for both banks and banking customers.


Intrigued? Join us for our online panel discussion at 4 p.m. CET on Wednesday as we explore the new frontiers in financial health solutions.

It’s game over for PFM – what's next?

It’s game over for PFM – what's next?

What’s next for PFM? Join us for our next online discussion to hear our expert panel talk about the past, present and future of personal finance-related solutions.

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