Increasingly it's not the bank account that consumers really
value, but tools that make that account better fit their lives. Fintech apps
like Zeta, Honeydue and Greenlight have already tapped into this need. The good
news from Forrester: Financial institutions don't have to invent new
capabilities to catch up — in fact, they have advantages fintechs lack.
Most bank and credit union products and services are
“one-player games.” That is, they’re designed from the perspective of one
person’s needs. Yet for many consumers personal finance has become a
collaborative matter in their lives. Sure, joint accounts have been around
forever, but that is a legal status, not an approach that can help people
improve the management of finances when they involve other people.
Fintechs, on the other hand, have looked beyond the legal
status of account ownership, overlaying accounts with transaction, monitoring,
control and communications/alerts capabilities that address many of the
practical concerns that arise when one’s finances involve spouses, partners,
parents, friends, roommates, children and temporary connections for special
situations like shared vacation homes.
Researchers at Forrester made these points in a report and
during a webinar. The firm has been examining the idea of “shared finance” over
several years and has framed a definition for the concept: “Any situation in
which a person acts as an observer of, partner in, or proxy for another
person’s finances.”
“By and large fintechs and other disruptors are well ahead
of established incumbent players in this space,” says Peter Wannemacher,
Principal Analyst. While a handful of large banks around the world have crafted
collaborative financial products, “most of the experimentation and innovation
and a lot of the recent traction we’re seeing in the market is coming from the
disruptors.” By contrast, he adds, financial institutions generally bring 20th
century answers to 21st century financial challenges.
However, the essentials remain the same and this is good
news for traditional institutions that wish to become more relevant to the
lives of busy consumers.
“Innovation in shared finance is rarely about brand-new
functionality,” Wannemacher explains. “Instead, it’s almost always about the
audience, the value proposition and the application of existing features and
capabilities. Experimenting and ultimately succeeding in shared finance doesn’t
require building out brand new technologies from scratch.”
Much of the challenge involves taking existing technologies
and financial capabilities and recombining them. For example, a feature
resembling texting that some apps use to allow joint management of an account
can help avoid spending that violates “house rules” or an understanding of what
money is earmarked for.
“One of the biggest problems people have when it comes to
shared finance relationships is the ability to communicate,” says Wannemacher.
Four Key Financial Relationships Where Fintechs Are
Beating Banks
In some ways the ongoing Covid crisis brought on more need
for collaborative banking, notably because there has been an increase in
multigenerational households as strapped parents have moved in with kids, kids
have moved back home and so on. However, the needs were growing before Covid
came along.
“Shared finance needs tend to be shaped by people’s life
stages and relationships,” states the Forrester report, “Design Shared Finance
Products To Drive Growth.” Some of these relationships are deeper and often
longer-lasting, while others are more transitory.
Four financial areas that Wannemacher and Nicole Murgia,
Researcher, covered during the webinar and in the report:
Centralized “family ledgers” for children and young
adults. Two forces drive this need — the desire to give structure to, and
monitor, youthful spending, and the wish to give kids some supervised financial
education. The financial choices they will be confronted with as they become
adults far surpasses even what their parents faced.
Among the fintech apps in this area are GoHenry, Greenlight,
and Step. One feature of GoHenry that appeals to Murgia is the ability to set
general savings goals, in addition to savings targeted for acquisition of
specific bigger ticket items like videogame consoles or a new mobile phone.
Money management for couples in various relationships.
“Different relationship dynamics among Millennial and Gen Z couples — such as
the prevalence of two-income households, premarital cohabitation, or deciding
not to get married at all — have led to financial relationships that are more
complex than they were when most banking products were originally built.”
Key apps for these situations are budgeting, tracking
spending and setting financial goals. Among the fintech providing these are
Honeydue, YNAB (You Need a Budget) and Zeta.
Part of what appeals to people about such apps in not just
the functionality, but also the in-the-moment financial training and
explanation, the sort of “banker in my pocket” moments.
Wannemacher finds traditional financial institutions, with a
few exceptions, poor at producing content that’s helpful, timely and in
sufficient quantity. He holds up Zeta as an example to emulate. Among other
measures the app offers a digital financial magazine and short money quizzes. A
recent article in the magazine actually addressed how to open a joint bank
account. A podcast in the magazine called Money Date features a couple
interviewing other couples about how they manage finances together.
Managing finances for the elderly. This is an
especially tricky area. Parents and other older relatives may not be able to
keep up with their affairs any longer, and can be duped by dishonest caregivers
and others. On the other hand, many still wish to participate in their
financial affairs.
While there are legal elements that banks and credit unions
are well familiar with, such as powers of attorney or joint accounts with
signing rights, there are fintech tools that can address more immediate
situations. A key aspect of these can be alerts for family members so the
elderly aren’t cheated.
Among the fintech apps in this area are EverSafe, Kalgera
and SilverBills.
There aren’t as many choices in this niche. “We don’t think
that is because there’s a lack of business opportunity,” says Wannemacher, “but
because, frankly, there’s a lack of imagination and probably some skewed
thinking around how to best support these use cases.”
Temporary systems for tracking and settling pooled
spending. As fewer people use cash, splitting restaurant bills and other
expenditures has grown a bit more complicated, leading to the advent of
services like Venmo and Zelle. Similarly, there are needs for temporary
financial “shared spaces” for matters like passing the virtual hat for big gift
or a group vacation.
Among the fintech apps in this area are Settle Up, DivvyUp
and Splitwise.
A caveat of our own for financial institutions, as embedded
finance becomes a bigger factor: Competition in this space could expand beyond
the usual fintechs. Take VRBO, the vacation rental by owner website. Their site
currently says that users sharing a vacation property can’t split deposits and
payments through the site. In today’s climate, that seems an easy fix for a
banking as a service provider to bring to the site.
Considerations for Banking Players for Trying Shared
Finance
A key point of advice from Forrester for banks and credit
unions that want to capitalize on shared finance needs is to build solutions
from capabilities they already have.
Beyond this, Wannemacher suggests that institutions think
narrowly at first. An app doesn’t have to address every single permutation and
combination that can confront a consumer, at least not out of the box. Upgrades
can be made as the institution becomes aware of new needs. (A narrow beginning
makes it easier to trash the idea and try again, too.)
Pricing can also evolve, along with features. Wannemacher
says that many shared finance apps use “freemium” pricing models. There is a
basic level of service at no charge and at least one superior level that takes
some kind of fee to access.
Forrester also notes that an institution doesn’t need to do
it all. As an example the firm cites the Chase First Banking account for kids.
Even though it is a megabank, Chase found that it was worthwhile to bring in
Greenlight to develop the account.
“It’s kind of an ‘Intel Inside’ approach, from a branding
perspective,” says Wannemacher. While this helped Chase create the account, he
added, it was important for Greenlight because it helped clarify “How they can
fit into other people’s ecosystems.”
One last point of advice from the analyst: Don’t ignore two
key advantages that you have as a traditional financial institution.
First, there is a strong level of trust in individual
banking institutions. That can be built on in sensitive areas like people’s
kids, their own finances, and those of their parents.
Second, people still tend to stick to traditional
institutions and graduate to successive levels of relationship as their lives
move forward. This gives institutions a leg up for attracting people to shared
finance offerings that can last for years.
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