Are PFMs Hurting Banks?

Why Banks Need to Prioritize Personalized Financial Guidance (PFG) Instead 

Financial wellness is a hot topic right now – and understandably so. 

As inflation soars and interest rates climb, consumers increasingly worry about their finances and the economy.  They’re even dipping into their own savings to cover basic living expenses, which they know they shouldn’t. 

At the same time, consumers are often not all that savvy when it comes to managing their personal finances, regardless of how well the economy is functioning. Even the wealthiest struggle to keep things straight. Fortunately, most consumers at least know how little they know about finance and – more importantly – want to improve and make better decisions. 

They’re also looking to financial institutions for that guidance. According to a recent survey, 41% of respondents wished banks provided more personalized offers or information to help them achieve their financial goals. Right now, that goal is keeping their head above water. 

But broadly speaking, goals can range anywhere from saving up for a vacation, getting out of debt, or even stockpiling funds for retirement. Either way, consumers are looking to banks to help provide solutions on how to meet those goals – and banks are outright failing them. 

Why? Look no further than traditional PFMs. 

Over the last decade, bankers have been obsessed with leveraging Personal Financial Management (PFM) tools within their digital banking apps with the intent to provide customers with a better experience that helps them manage their finances. Keyword: manage. 

But how much value are they really providing? 

Banks need to reassess their PFMs and ask if those tools really address their customers' needs – and in the right way. Here’s why. 

PFMs lead to disengagement 

Outdated PFMs do nothing more than provide fancy pie charts that show a customer’s spending, which are focused on the past and typically spotlight poor spending behavior. Getting alerts that tell you how many Starbucks coffees you purchased last month that could have instead gone to your savings account does nothing more than shame customers and discourage engagement. 

Customers don’t need (or want!) any more negativity thrown in their faces. Simply put, no one likes hearing about how they’ve messed up with no suggestions or ideas for how to fix it. PFMs basically say, “Hey, you’re in a hole,” and that’s it.

Imagine if a fitness app told  you how many cheeseburgers you ate last month versus providing you with positive encouragement for how many steps you took. You’d likely avoid that app altogether. 

Financial wellness is no different. Positive encouragement is critical to keeping engagement high. 

PFMs offer banks little ROI but a big competitive risk

Financial institutions often spend $300,000-$500,000 on their mobile application, complete with a PFM feature, but with no real ROI to show. This makes sense. If engagement is low, banks miss out on opportunities. 

But it goes beyond that. With lower engagement, banks risk losing customers to competitors, particularly nonbanks. In fact, a new survey from Oracle found that over 40% of customers think nonbanks can better assist them with personal money management and investment needs, and 30% of respondents who haven’t tried a nonbank platform said they’re open to trying one.

Personalized Financial Guidance (PFG) is the new and improved PFM

On the flip side, Personalized Financial Guidance (PFG) focuses on guiding (keyword) customers through their financial journey, regardless of where they are or where they’ve been. Ultimately, it offers guidance on what customers can or should do with their money to meet their specific goals. 

Solutions-driven versus insight-driven, PFG tells a customer, “Hey, you’re in a hole, and here’s the exact ladder you need to get out.” It’s essentially the 2.0 version of PFM and what PFMs were intended to be. 

With PFG, banks understand every customer's financial journey rather than a subsection of customers. That journey can range from paying off debt, starting an emergency fund, building wealth, etc. The bank can then pinpoint exactly where they are on that journey and provide products and services that meet their specific needs at exactly the right moment. As a result, banks deliver more personalized service that speaks to the pain points their customers face right now. 

PFGs create loyalty in an era of digital-only banking

With PFG, banks also position themselves more strongly as true partners, which increases loyalty. This is critical as consumers turn to digital, and banks lose the option to build rapport at the branch. We are no longer in the good ole days when small-town bankers like George Bailey could build live relationships.  Everyone is online. 

In fact, according to J.D. Power’s senior director of banking and payments intelligence, Paul McAdam, over a quarter (27%) of consumers use online-only banks. We can expect this to increase as Millennials and Gen Z show a preference for online.  

PFGs harness the power of gamification 

Unlike PFMs, PFGs also tap into gamification to help banks build better customer relationships, but in a fun and engaging way. Let’s face it, getting out of debt or saving for retirement is not exactly fun. 

These are also long-term goals, meaning customers don’t get instant gratification when their savings increase by $50 monthly. What is instantly gratifying is spending $50 on something tangible, like a pumpkin spice latte, every day until Christmas. 

By incorporating a gamified approach, customers can interact with their digital banking app much like they would with a successful fitness app. Banks can leverage this technology to build in levels and reward customers when they hit certain benchmarks. Banks then increase engagement, move up their customer's share of wallet, and ultimately create sustainable growth and income for the financial institution, all while helping their customers. 

Customers want guidance, not self-management 

Whether customers are building an emergency fund, paying off debt, building wealth, or anything in between, banks can deliver impactful suggestions and strategies in the moments that matter most to their customers. But doing so means moving away from outdated PFMs and towards true personalized financial guidance. 

As consumers look for answers in a time of uncertainty, PFG is what will drive revenue growth for banks while also supporting customers’ financial wellness. It’s a win-win. 

About Author:
Parker Graham is the founder and CEO of Finotta, a provider of embedded fintech for digital banking. For more information, visit

Want to keep reading? This content is for subscribers only.

Login Subscribe