I started my adult life studying accounting and finance in Perth, Australia, dropping out to start my first tech company in 1999, raising millions in venture capital before my 22nd birthday, running the startup through the boom and bust of the early 2000s and well into the subprime meltdown before finally walking away from an enterprise software company that counted over 90% of Australian banks as clients. I moved to the US to start again, this time focused on consumers.
The Internet has created an unprecedented amount of opportunity to redefine the personal finance space but as at September 2012 the landscape is still hugely dominated by antiquated and enterprise-centric solutions. The lion’s share of consumer and personal finance software interactions still happen on systems developed decades ago, such ACH, SWIFT, Maestro/Cirrus and the ATM networks.
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The most successful personal finance software platform in the US, Mint.com, still counts barely 3% of the US population as ‘active’ users (where active is defined as using the service at least once a month) and is virtually inactive with the remaining 1.9 billion Internet users.
Clearly the Internet has not changed personal finance. Not yet.
Put another way, there is no dominant brand that the Internet associates with personal finance in the same we think of eBay, Amazon, Google and Facebook when we think of classifieds, shopping, search and social.
So how will the Internet change the face of personal finance becomes the real question and to properly comment on this we first need to define the Internet.
The internet is no longer simply the any-to-any connection of computers storing data, enabling any individual access to unprecedented information. Dropbox founder Drew Houston framed his massively successful company as not so much building a product or service for users, but for the Internet itself. This in a way represents what the Internet is becoming: an array of services on which applications can be built.
Figuring out how this Internet will change personal finance requires a look at the services coming online that are going to form the building blocks of any new personal finance applications. For example, I see these companies as the leading providers in their respective areas:
Historical Transactional Data: Yodlee aggregates all the historical transactional data from every major bank in the world, enabling Mint and the slew of ‘me too’ products. Their pricing and structure is prohibitive from the type of explosive growth we expect on the Internet. In time I believe they will change their model which will power the next generation of personal financial reporting tools.
Online Payments: Dwolla. Especially in the US, online payments represent one of the most limiting parts of the stack available to build out personal finance applications. The integration and availability of real-time data flows representing personal consumer transactions will enable functionality not unlike that seen in auto or health today, which live on similar real-time data feeds.
Offline Payments: Square. Point of sale technology is yet to be truly disrupted. Last month Starbucks invested a token amount in Square and agreed to roll it out to their 6,800 stores in the US. This represents the first major step towards truly connecting the point of sale in the real world and the Internet.
Banking: Simple (formerly BankSimple) is the first full-service bank built from the ground up as a technology company, with a mobile-focused banking experience. Simple will not so much redefine banking for everyone as reset the bar for how technologically progressive a bank needs to be.
Once these building blocks made by these companies (and those that will imitate them) begin to take hold you will start to see true innovation in personal finance. This innovation will be centered around data and decisions.
Personal finance is software that the mainstream needs, but doesn’t love. No one loves logging into their bank account but most accept that they need to know how much money they have as a binary indicator of whether they can do whatever it is they want to do next.
Personal finance tools that are yet to evolve will take this binary indicator far further and, by pulling in real-time data — such as historical transactions, online payments, offline payments and banking — will provide meaningful input to help people take control of their personal finances.
In much the same way as GPS-based navigational systems have improved as raw data has become more available and have become more ubiquitous as the input costs drop (physical units & GPS service), so too will personal finance applications become less and less something we go into and more something that simply follows us around.
Once this happens we will (as you can observe with any Gen Y or below) end up trusting the machine more than the person it replaces. In the end personal finance decisions, particularly those relating to our income, spending and debt, will be made only by first consulting the tool.
When your personal finance application makes it to the front page of your mobile device alongside Twitter, Facebook and Google, you will know we have arrived.
Until that point there is a brave new world out there to be created in personal finance. It may not hold the same allure or sex appeal as that which has come before it but inevitably one company will dominate this category too.
Watch this space.
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