The future looks bleak for personal finance managers.
Yesterday came the news that Tandem, one of the UK’s best-known neo-banks, will acquire money management app Pariti. While a great deal of excitement typically surrounds such stories, it is in fact a dark portent for other Pariti-like startups.
Money management apps – or PFMs (personal finance managers), as they’re often known – used to occupy an interesting niche in the market. They offered users a rare thing: the opportunity to get on top of their finances, easily, even if those finances were spread across multiple bank accounts and cards.
One connected with, a PFM could tell users things like how much they were spending a month on coffee, how much spare cash they'd have for the week ahead, and where they’re paying too much for a given product or service. This last feature was particularly promising in that it opened up cross-selling opportunities. For example, Pariti was able to identify over-expensive credit card debts and suggest that its users consider refinancing with a Zopa or Lendable loan.
These kind of services were great, when only PFMs could offer them. These days, however, these services come as part-and-parcel of the standard digital bank offering, and of course that offering is a great deal broader than the offering of a PFM. Digital bank customers are also offered pre-paid cards, fee-free overseas spending, instant payment notifications, current accounts, debit cards, loans, insurance, wealth management – even cryptocurrency trading functionality!
Besides being made largely redundant by the neo-banking revolution, consider this: the typical customer being targeted by PFMs and digital banks is in all likelihood pretty similar. First and foremost, PFMs exist to augment the clunky financial services experience offered by incumbent banks – and incumbent banks certainly have enough disgruntled customers for PFMs to continue to be of use. But the problem is that the type of people who would use a PFM are also very much the same people who would use a digital bank. So while there might still a market out there for PFMs, the people who would actually bother to use them probably already have either a Starling, Monzo or Revolut card (or all three).
I’ve written before that marketplace lenders should steer clear of financial health app-related M&A, after a string of splurges-gone-wrong in the US. I stand by that. The value of PFMs lies in their independence – they need to be able to push products based on customer need. Once they're owned by a lender, they will inevitably end up having to push the loan products of that lender. Either that, or the lender will develop a case of buyer’s remorse, and the integration project will be shut down (as has happened multiple times in the US market).
The fact is that they’re just aren’t many buyers that are well-suited to acquiring a PFM. Digital banks are a good fit, sure, but as discussed, most of them are already doing what PFMs do. Pariti was lucky to find a dance partner in Tandem. What the rest of Pariti’s ilk will end up doing is anyone’s guess.
In fact, it’s not: they must, must, must find a buyer quickly, or they’ll simply run out of runway. The advent of Open Banking arguably makes things harder, rather than easier. The USP that was being able to offer users a consolidated view of their finances across multiple products starts to look considerably less unique when the biggest banks are forced to offer access to customer data for whomsoever (with the right permissions) asks for it.
In sum, for money management apps, the clock’s ticking. Were they to assess the state of their own prospects, things wouldn't look good.
These themes and many more will be discussed at the upcoming AltFi London Summit, 26th March at etc.venues. You can view the agenda in full here.
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