In September 2012, I had intended to write a post on how the Internet has changed personal finance. Instead, I discussed that it had yet to, given that some fundamental building blocks to enable that change were only at a nascent stage.
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Some 18 months later, it is safe to move into the present tense and explore how the internet is finally revolutionizing personal finance.
Firstly, it would make sense to explore how each of the four companies I presented as bellwethers for innovation in the original post have progressed since 2012.
- Simple has amassed over 100,000 customers and recently been acquired for $117m by BBVA.
- Yodlee Interactive now powers applications for millions of users worldwide, including household names like Credit Karma, Billguard, and Learnvest.
- Dwolla, which aimed to replace checks and the aging ACH infrastructure, has moved from millions a month in 2012 to billions per year by the end of 2013, and is even being used by government.
- Square has been the standout growth story, now processing billions of payments annually. It also leveraged its brand to put devices such as the Square reader and apps like Square cash in the of hands of millions of individuals and smaller businesses.
A common theme emerged with all these enabling companies, that the time to get going with their respective technology has been reduced to mere hours.
Change is clearly underway.
The intersection of technology and people
To understand more about how the Internet is now changing personal finance, we first need to define personal finance. Here’s my interpretation:
Personal Finance is the combination of knowing what you earn, spend and owe and have, your capability to transact immediately either in person or online and the interactions around the things you want to do next
Being able to see all your accounts and transactional data in one place is now a commodity, being offered at no cost to the consumer, packaged up in various business models from offers to advice.
The key players in this space are targeting different demographics and value, adding to the raw data commodity in their own way. This might be Billguard’s unique abilty to monitor your transactions for grey charges or Personal Capital’s advisor network at your fingertips.
The applications are rich, easy to use and predominantly mobile. Insight and advice is superseding data and graphs.
With the backings of major established payment networks like PayPal/Braintree, there is a proliferation of person-to-person payment apps, such as Venmo (which Braintree acquired, and was then acquired by PayPal).
Interesting hardware-based technologies like Coin have also shown that our offline relationship with digital money is ripe for re-imagining.
Most importantly, the relative speed with which these apps and technologies were created demonstrates that payment is fast becoming a capability, not a thing in its own right.
No conversation about personal finance right now would be complete without some reference to Bitcoin. While I believe Bitcoin has a huge future, it is far too early to be having any measurable impact on personal finance as yet.
The advent of mobile not only put a high powered computer in the pocket of over 75 percent of Americans, also stuck the Internet right there alongside it. With over 80 percent of major purchasing decisions being researched online, we have started to see tools like Planwise embedded in property websites, giving personalized insight into the financial impact of a potential purchase without even having to go into your personal finance tool.
Simple & Moven also play in this realm by looking at your previous spendings and providing ways to save – given that most day-to-day spending choices are habitual in nature.
In short, in the last 18 months personal finance has got a whole lot more personal, and intuitive.
What has really changed in the last 18 months, with the explosion in APIs around data, transacting and insights, is the speed of innovation. This combined with the advent of a smartphone-enabled mainstream has meant that the time and cost to put something functional, richly interactive and personal in the hands of the consumer on an everyday basis has been drastically reduced.
In the next 18 months I believe we are going to see three things happen in the space:
1. The “point solution” personal finance apps – that today focus on one thing – are going to incorporate standard personal finance tracking, transactional and insight capabilities. Why wouldn’t they? The ones that do it in a meaningfully connected way to their current value proposition will be most successful.
Personal Finance applications will look to go outside the US – either from the start or very soon after launch. There is now simply too much opportunity outside the US for it to be ignored.
2. We will see innovation via acquisition, read: there will be M&A activity this year around the current established players in the PFM space, and the buyers will likely be large banks, not other software companies.
More than this, you will see a move from niche (the <10m active users today in the US only) to mainstream adoption as rich, mobile-centric, personal finance applications become a part of the banking fabric.
This will happen as large banks come to understand that being able to check your balance and deposit checks on your mobile banking app is not a way to create meaningful engagement with their customers, and that they simply can’t keep up with the pace of innovation outside the bank.
3. Banks will give away third party PFM technology so they can focus on their role that Gartner Analyst Stessa Cohen referred to as a “Digital Personal Financial Advisor.” In the same way that Internet/online banking transformed the cost structure of the banks around providing bank service, PFM is poised to transform the cost structure around selling new banking products.
The ability for personal finance technology to be created so quickly outside the bank that replicates most, if not all, of the things you want your bank to be able to help you with will force banks to either acquire the technology to compete, or open up their infrastructure via APIs to form part of the next wave of innovation.
2014 is going to be a big year in this space, and the main beneficiary will the person in personal finance: you.