Pink Floyd fans won’t need any explanation for this post’s title*.
The recent buzz around Artificial Intelligence and Machine Learning has spawned the next generation of Personal Finance Management applications. While the forerunners in the cateogory like Mint (now part of Intuit, Inc.) are still available on the web, most of the new players are mobile-only. Going by monickers such as Mobile Money Management App and Money Management Bot – herewith termed MoMMA for the sake of convenience – they all require access to their users’ bank account information.
This has become a bone of contention of late with banks reminding their customers that their TOS forbid them from handing over their online banking credentials to third parties (I don’t know what took all but a handful of banks so long to assert an old clause in their terms of service – actually, I think I know, but that’s a blog post for another day).
But banks are not taking this lying down. According to Financial Times, big banks are lobbying to reduce access to customer data envisaged by PSD2, which would substantially dilute the original provisions of “open banking”. According to Sebastian Siemiatkowski, chief executive of Swedish online payments company Klarna, quoted by FT, “If it (PSD2) goes ahead as currently written it will not create open banking as the law originally envisaged.”
Fearing an existential crisis, fintechs are fighting back.
In fact, they should stay away from regulation. As I’d highlighted in Fintechs Need Marketers And Lobbyists – Not Lawyers and Fintechs Need Guts More Than Lawyers!, many successful startups have flourished by leveraging “regulatory gaps” rather than regulation.
Instead, MoMMAs should become truly innovative and enhance their value proposition.
Intuitively, everyone knows that “earn more, spend less” is all the money management mantra they need. To get people to use a MoMMA to practice this principle is a tough sell, made even tougher by what the current crop of MoMMAs currently do:
- Transform the customer banking experience by enabling consumers to compare and save on current accounts, … look for mortgages more easily and access better terms for loans (Source: Finextra article titled Consumers unaware of Open Banking – Equifax)
- Answer questions like “How much have I spent on Uber this month?” and “Can I afford to go for dinner?” (Source: Finextra article titled Personal Finance bot Cleo)
- Protect customers from bankruptcy by telling them not to buy that $4.50 coffee. Okay, I’m joking about the bankruptcy but the part about the coffee is true.
IMHO, these existing features are quite lame because:
- MoneySuperMarket, Which? etc. have been letting us do comparison shopping for current accounts and mortgages for ages without needing any access to our banking info.
- What can we do about the money we’ve already spent on Uber?
- If we can’t go for dinner, do we starve?
- We don’t need a fancy MoMMA to tell us that a coffee costing $4.50 is a big rip-off that’s worth avoiding even if we’ll stay within our budget by buying it.
Okay then, how can a MoMMA use innovation to offer true value to its users?
A few ways of doing that would be for a MoMMA to:
- Give truly useful money management tips e.g. Earn $$$ more by sweeping X amount from a checking account to a savings product.
- Indemnify customers from losses caused by data breach arising out of third party access to customers’ banking info.
- Access only the info customers permit them to access – nothing more, nothing less. Screen-scraping via online banking password, which is currently the most widely used technology, fails this test because, once they’ve given away their online banking passwords to these apps, customers have very little control over what info the app can and cannot access.
- Make data sharing activity frictionless. OFX is one prevailing technology that lets the user download only the info they explicitly want to supply to the money management app or bot. However, most apps and bots require frequent updates of transaction info, which means users have to log in to their online banking portals frequently to download the latest version of their transactions. This can be painful.
#1 is related to consumer behavior and product management. #2 has a legal angle. They’re both within the control of the fintech.
#3 and #4 are related to technology. As I’d highlighted in P2FM Services Walk The Tightrope Between Convenience and Security and How Many More PFMs Do We Need?, data access modalities have posed major challenges to the viability of the first generation of PFMs 8-10 years ago. But, all that’s history now. OFX-API seems to have cracked the Holy Grail of data access, going by the gung-ho views expressed by executives of JPMorgan Chase and Intuit when they recently announced their data partnership agreement based on this technology (Source: American Banker).
As a result, fintechs are closer than ever before to being able to leverage their innovativeness to develop a compelling value proposition for PFMs. If they achieve that, they can kick off their ‘open banking’, PSD2 and other regulatory crutches.
In return for the ability to make frictionless payments, tens of millions of otherwise security-conscious customers make payments with India’s largest mobile wallet app PayTM without entering a single password or PIN.
If MoMMAs give them a similarly compelling value proposition, people won’t care about sharing their online banking credentials with them – with or without PSD2.
I’m not alone in holding this view. As Steve Ellis of Metia says on Finextra, “…the question on sharing personal data is the wrong way round. No-one agrees to share personal data without being offered some kind of fair value exchange for it. Show the consumer a compelling value proposition and they will do it in the blink of an eye.”
Let me conclude by paraphrasing another Pink Floyd line:
Hey! Fintechs! Leave Them PSD2 Regs Alone
*: As for the others… well, it’s never too late to become Pink Floyd fans!