My role at TMG Financial Services allows me to think about the macro trends that will shape and continue to drive innovation in the payments and financial services industry in the future.
Recently I have been looking at the different ways financial technology (fintech) companies are thinking about the delivery of personal financial management solutions into the hands of consumers. I believe there are 6 major trends today that will shape the future of PFM solutions. I discuss the first three trends below.
1. The Digitization of Currency
When you think about the dollar bill in your wallet, it holds value to you because it is used and accepted by many people. When I hand over a $10 bill to a store clerk I do not know, I will receive from that clerk what I perceive to be $10 worth of goods or services.
Aside from cash, merchants and financial institutions also offer you currency to help influence you in the form of points or cashback rewards. Many of these alternative currencies have three constraints that limit their general usefulness – they expire after a period of time, they aren’t accepted at every merchant, and they may undergo ‘devaluation’ over time (the point you earned for the $1 of merchandise you spent may be worth less than a penny when you choose to redeem it for merchandise or other redemption option).
As currency becomes increasingly digitized, other types of currency, which today may have value with a sole merchant (e.g. store credit, airline and hotel loyalty points), will be mingled with traditional money to form a pool of liquid assets, available to spend with anyone.
We see this today with gift card exchange sites such as Cardpool and CardHub who offer to purchase an unwanted gift card for roughly 97 to 98 cents on the dollar. You can also exchange an unwanted gift card for another of the same value (for a small fee). You can even purchase gift cards from them.
Financial institutions are also transforming their currency into fungible assets. Discover promises you can redeem your cashback rewards in any amount, at any time. Other banks are allowing you to use points to pay for a purchase at the point of sale.
As these alternative currencies become digitized, the constraints of expiration, acceptance and devaluation will become increasingly minimized, allowing you to realize more of these currency’s value than you do today.
2. Data Processing Capacity
The cost to store and process data continues to drop by magnitudes which will allow for PFM solutions to gather information on your consumption habits – where you like to shop, what days of the week and times of day you shop, what items you buy and how often, whether or not you have brand loyalty to specific items. Your PFM solution of the future will build a database of your shopping habits and preferences. The next trend will demonstrate how your PFM solution will assist you in capturing the value of this data.
3. Product Intelligence through Rules-Based Decision-Making
The PFM solution of the future will apply rules-based logic to take your behavioral information above and do a number of things for you. First, it will create a shopping list for you to make sure you don’t run out of items you use most often. If you purchase a 4-pack roll of paper towels every six weeks, then every sixth week a 4-pack of paper towels will appear on your shopping list. Because your PFM solution knows your preferred vendors and your brand preferences for certain items it will bump your shopping list up against the websites of your preferred merchants and shopping comparison engines on the internet to see how you can stretch your shopping dollar by finding the lowest price for your specific items. That’s product intelligence creating real financial value!
And don’t forget you’ll want to bring your solution along to the checkout line. The solution’s currency tracker will apply “first in, first out” rules on currency with expiration and anniversary dates (e.g. airline miles, gift cards) to ensure they are spent before they expire or are charged inactivity fees.
The three trends I’ve covered today are all about how the future of PFM will provide solutions that will help you keep more of the currency you earn and stretch the value of your currency as you spend it. I’ll cover the other three trends next time, but I invite you to think about how you manage your personal finances today and think about these three questions:
- Can you extend trust toward a PFM solution like this?
- Are you comfortable with a PFM solution knowing more about you than you may consciously know about yourself?
- Are you confident that if you extend trust to this solution and are comfortable with the information it holds about you, this solution can help you to achieve your personal financial goals?
I invite you to leave a comment with your thoughts.