As someone who has always been fascinated with technology and all things digital, I was an early adopter of Microsoft Money and later Quicken. I thought it was a great idea to see where my money was going and how fast I was earning or burning it. But, I’m a minority. Digital money management, often referred to as personal financial management (PFM), has not seen huge adoption rates despite the benefits to one’s pocketbook. And yet, PFM tools have gotten better and better.
Mint integrates with almost all of your bank accounts and credit cards and automatically categorizes your spending (it knows that Loblaws is a grocery expenditure and that Shell is a gas expenditure, for example) so you can see where all your money goes and where you can cut corners to save. Digit complements Mint and takes savings even further by looking at your spending patterns and automatically transferring money into a savings account (based on an algorithm that determines what you can afford) so you don’t spend it.
So, with all of these great tools popping up, why is there a low adoption rate?
Perhaps it’s less to do with features and benefits or even user experience and more to do with human psychology. Those who are natural “planners” love the increased information and ‘control’ that they have over their finances. For others, downloading an app and setting up a profile seems like extra work where the payoff isn’t that noticeable.
Banks have responded to these new technologies by cherry picking features of PFM that gratify their customers (spending charts, seeing your net worth, etc.) and integrating them into their apps and online banking platforms. Take a look at BMO’s MoneyLogic, RBC’s myFinanceTracker, TD’s partnership with Moven to create a spending management app, and CIBC’s CreditSmart as recent examples.
Now let’s take look at another financial innovation, Robo-Advisors. Robo-Advisors occupy the middle ground between DIY investing using online discount brokerages and full-service investing using a financial advisor. They’re cheaper than a financial advisor, and invest your money for you based on your age, risk profile, and other information you enter into the system. In Canada, start-ups like Nest Wealth, Wealthsimple (who recently received a $30m investment from Power Financial), and Wealthbar have entered a space that, until now, has been dominated by the major financial institutions. Will the big banks and brokerage firms respond with Robo-Advisor services of their own? Only time will tell.
When discussing technological innovations and their relationships with major financial institutions, there are two important principles to remember:
1. Major financial institutions are generally early majority adopters of disruptive technology, never bleeding edge. This happens for a number of reasons – because the big banks’ first priority is the safety and privacy of their customers, because tight regulation makes radical change difficult, and because banks and large financial institutions are much more likely to wait until third party innovations are widely adopted before creating their own versions. When the majority of your customers are mass adopters, it makes sense to wait until technological innovations are proven to work properly and are desired by your largest customer group – the average Canadian.
2. Technological innovations in the financial industry are about making current behaviour easier, not encouraging new behaviour. Consumers, in general, will not adopt new behaviour just because new technology makes this behaviour easier. If they’re used to paying with a credit card, paying with a mobile phone seems like an unnecessary step, for example. In the case of PFM, if they’re not already budgeting and analyzing their spending offline, they will not jump to use an online manager simply because it’s ‘better’ than a spreadsheet.
Technological innovation in the financial industry moves at a slower and more linear evolutionary pace than in other industries. 10 years ago, the thought of sending money via email was often seen as unnecessary and rife with security issues. Now, email money transfers and their peer-to-peer payment gateway counterparts like PayPal are ubiquitous. Online shopping and online banking were also once thought of as radical shifts, but were adopted slowly until they reached a critical mass of consumer trust.
Third party tools are an exciting development, but they aren’t necessarily ready to supplant the big banks as a trusted partner in a consumer’s financial life. The best way for big banks to compete with these newcomers while remaining a safe haven for consumer trust is to understand their customers and their threshold for technology adoption in each unique segment. Burying their collective heads in the sand may cause big banks to lose out on new consumer demands, but rushing to provide a service that isn’t needed until years from now can also be an unnecessary (and risky) spend that could be better allocated elsewhere. By keeping their fingers on the pulse of the Canadian consumer and understanding their true value to customers, the big banks can be ready to adopt and win against technological newcomers. But, only when the time is right.
Jason Dojc is a Senior Digital Strategist at Ariad Communications.
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