The future of personal finance is automated.

A framework for how to think about building personal finance applications.

Your bank just charged you an ATM fee. You hate that. You’ve been banking there for your whole life. You have a love hate relationship with your bank. But you don’t want to be hassled with switching. Secretly, you are just lazy. You need an app for everything.

Laziness — is there an app for that?

Turns out there is. Automation is at the core of the consumer FinTech race. FinTech startups are focusing beyond “recommending” and “advising” towards “doing” — performing the task on behalf of consumers that provide financial value.

Take WealthFront, automating investments and taking market share from online brokerages. Or Digit, automating savings and taking market share from national banks. Or Paribus, automating price drop protection on your purchases, taking money back from large retailers. They all provide value without having you lift a finger.

Helping lazy people is not the primary goal — ultimately it is to even the playing-field. Most people simply are not aware, or do not know how. Many do but don’t have the time. Banks have made it hard to perform these tasks on purposes — to increase the stickiness of their products, and make additional revenue on financial advisors and brokers.

And why do consumers need to perform these tasks in the first place? We have electricians, mechanics and plumbers but when it comes to our finances we keep beating our head against the wall. The average American should not need to know file taxes following an extremely complex code. FinTech is doing to finance what household appliances did to the home: give back quality time. By automating mundane, difficult, or annoying tasks, FinTechs are providing consumers more peace of mind and time to spend doing meaningful things.

Countless applications are helping you “Automate Savings”.

Savings = Income (-) Spending. So Apps can either help increase income or reduce spending.

• Increase income = sum of salary, investments, savings rate, rewards.
• Reduce spending = # transactions x amount ($) of each transaction.

Setting aside income (which will be the focus of a separate post), the goal is to reduce spending in an automated way so as to eliminate user’s cognitive and time overhead.

People spend on the following:

• Needs = things you need to live a basic life. Rent. Food. Public transport. Health Insurance.
• Wants = things you don’t really need, but make you happy to you want them. New clothes. A trip to Thailand. Beats headphones.
• Never wanted = things you don’t want to pay and could have avoided paying but now you need to, like late fees, parking tickets, etc.

Given this, goals of FinTech players should be as follows:

1. Help customers reduce the price of what they pay
2. Buy less wants to have enough money for needs
3. Avoid their never wanted

1 —Reduce price

Reducing the amount of transactions requires leveraging contracts and competition. This can be done in two ways:

• Before the purchase: applying discount codes at checkout, finding cheaper products, etc.
• After the purchase: negotiate contracts on behalf of the customers, getting money back when price drops, etc.

FinTechs can help here in two ways:

• Automate benefits that are readily available to the user. Honey with coupons. Trim with bill negotiations.
• Switch to (or sell) better products. SoFi with student loan refinancing. Tally with credit card refinancing.

2— Buy less wants to have enough money for needs

A penny saved is a penny earned, right? While many startups are in the “cost reduction” space, few are trying to make you not buy. This is because reducing the volume of transactions is harder — “hey I saved you $10” is a much easier sell than “don’t buy those new shoes”.

The first step is awareness. Many apps focus on spending history and trends, comparing you against your past self or peers to point you in the right direction.

The second step is budgeting. “Safe to spend” features, if done correctly, are valuable to the user who simply does not know how much she can afford. There is no winning budgeting tool out there, simply because budgeting is hard and no one wants to do it.

FinTechs can help in the following ways:

• Build budgeting apps that are more natural and not a burden. Even’s “Safe to Spend” feature is a good start but how do you gain trust?
• Help users value the “happiness” of what they buy agains the cost. FindJoy does this well.

3— Avoid their never wanted

No one likes paying fees or interest. Yet consumers paid $17 billion in overdraft and NSF fees in 2015, according to the Center for Responsible Lending. No one likes having to front money for a mistake. And mistakes happen. Apps can help.

FinTech players here operate in the following ways:

• Providing a better products. Chime bank has free ATM and no overdrafts. Simple credit card has no fees.
• Providing services to help you avoid never wanted. Tally refinances and pays down your debt automatically. Cushion.ai negotiates down your fees.
• Ensure you have adequate coverage. Cross sell valuable insurance. Trim does this well.

Comparing 3 financial assistant apps

Each app has the following:

• Connects to your bank accounts (likely using Plaid)
• Summarizes spending and cash positions, including trends, transactions, categories, etc.
• Focuses on saving you money as you “automated financial assistant”

Albert: Save money, effortlessly

Summary: Promising “Genius” support and good focus on financial health, with lots of room to improve UX. Score: 6/10

Features

• Alerts
• Saving
• Bill negotiation (called “Overpayment protection”)
• Financial Genius

Pros

• Financial health score is spot on. Give me a score that I can change, break it down according the metrics that can be understood. Improving your score will help you financial health, which is the goal.
• Missions are nice and keep things fresh, but I have not received any missions other than signing up for their savings account. The gamification aspect is motivating and makes users feel good

• Genius is a new concept that might pay off, although people hate talking to real people these days. The limitation is that people don’t know what to ask because they are not aware of what to ask for.
• Alerts are unexpected and insightful. They vary from fees to large transactions to merchant analysis

Cons

• I was forced to create a savings account to be able to “finish setup” on the account which is a poor user experience. Recommend moving to a model where you have a free trial and then select payment amount.

• User workflows are long and wordy, showing lack of focus in the design
• You highlighted fees — that’s great now what? Can you make them go away like Cushion.ai does?

Recommendations:

• Make financial health score front and center — this is by far the most useful feature. Build missions on a good cadence to move each of these metrics. Ensure there is an incentive for me to improve this score — what will I get? By filling our LinkedIn’s profile, I get better hits from job offers. Albert needs to unlock something for me, like better financial products or free advice.
• Outbound genius. I signed up for it and still have not used it, so will likely not continue paying for it. Have someone schedule a session with me to give me a rundown of 3 things I should do or think about. Show me the value of this tool.

Clarity Money: Champion of Your Money

Summary: Slick app packed with free, valuable features but limited in terms of continuous engagement. Score: 7/10

Features

• Summary of cash vs debt
• Spending analysis
• Bill negotiations / canceling
• Credit score monitoring
• Automated savings with Acorns and Marcus
• Credit Card utilization monitoring

Pros

• Very slick user experience and design. The visual appeal makes me want to come back and monitor my expenses.

• Packed with features, including free savings, credit monitoring, bill negotiations, etc.

Cons

• Limited in terms of alerts / engagement. I did not see myself log back into the app, likely due to missing notifications and incentives.
• Unsustainable business model — it is highly unlikely that Clarity was able to fuel customer acquisition, pay Plaid, money transfers, and credit monitoring for FREE. Which is why they wanted to be bought by Goldman.

Recommendations:

• Incentivize me to open a savings account by depositing matching my first $5. I do want to save, but I do not want to have yet another savings account that I have to track and move money from.
• Don’t just tell me my bill is coming up. Help me make sure I will have enough money to cover the bill. Alert me the moment you predict that I might be in trouble and give me 1 click options you can do on my behalf

Trim: Saving Money

Summary: Chatbot mostly focused on bill negotiations and alerts, but expanding in many directions. Score: 5/10

Features

• Alerts
• Saving
• Budgeting
• Bill negotiation (internet, phone, energy, insurance)
• Debt payoff
• Insurance (via Lemonade)

Pros

• Personal alerts are nice — especially ones about large transactions. Makes me feel in control in case something wrong happens.

• People seem to enjoy bill negotiations — there is clearly an aligned value proposition there.
• Spending analysis is nice — I appreciate the cash flow computations and spending vs. my history or my peers.

Cons

• Facebook Messenger platform was an interesting choice. Facebook lost significant trust in terms of privacy, so linking a Financial App with Facebook (even if data is not shared) seems like a hurdle. Betting on messenger is a risky one — text message is not going away (and Facebook bought Whatsapp for a reason). You can maybe save on Twilio costs in the near term, but ultimately a standalone app is more valuable.
• Chatbot is neat to send notifications and prompt user to answer questions. Ultimately, I assume 99% of the questions asked could be served via an app home page, and the 1% of questions that are challenging are not yet supported by a bot. People do hate talking to live agents though, so building up the capability to get request from user and do things for them (e.g. can you fight this fee on my account?) is key.
• Overwhelming number of widgets. I have not. Some widgets should die — like the debt payoff calculator. The debt payoff calculator provided a payoff schedule for my credit card — when I pay my balance in full every month and have enough cash on hand to do so. Instead of showing me scenarios that are not relevant, tell what to do, and do it or me.

“Show me more” = poor call to action

• Savings transfer is fairly basic. Seems that they are using SynapseFi for their banking solution. $2/month to get a 1.5% APR means I have to keep $2*12*100/1.5 = $1,600 in the savings account on average to break even. This would be hard for most consumers. Clarity Money does this for free.

• Debt payoff seems limited — mostly a glorified payoff plan with someone calling your bank to try to negotiate your APR. This is far from Tally’s solution as automated debt consolidation and debt payoff via an installment loan.

• Actions to take based on my spending information is still unclear to me.

Suggestions

• Incentivize me to connect more accounts. For example, deduce from my initial account which account I have transferred or made payments from, and ask me to link that account.
• Stick to fewer features and do them well. There are many features here, each could be it’s own product, but is not quite there yet. It is also confusing since features are available and marketed to everyone. Segment customers and test the feature with specific groups to get product market fit.
• With fee alerts, build in capability to fight the fee.
• Make the savings product free with a paid option for “smart savings”. Savings should be free.
• Move to a standalone mobile app with chatbot as a channel for customer support and personalized advice.
• Consider partnering with purchase protection programs.

Final recommendations:

• Focus on fewer features and do them well. Trying to be a financial advisor for the masses will take time. Focus on a specific persona and get to know that persona deeply before moving forward.
• Solve on big problems. For example, Americans have a debt problem. You can make a business purely on trying to manage and reduce debt. Credit Card servicing companies mostly garbage and make money on confusing you — build a better credit card management advisor.
• Incentivize me to give you more information. Don’t just assume I will connect all my accounts — every account is more data I give you for free. Give me something back for doing so.
• Deliver on the WOW factor. You just sequenced by bank DNA. 23 and me tells me who my ancestors are. You just tell me my balance. How underwhelming is that?
• Automate switching financial products. This is the million dollar feature — bank products are sticky which is why banks make significant income on fees and interest and people still don’t leave.
• Gamification. People don’t understand the value of being “financially healthy” — make this tangible for them via new features, products, partnerships, discounts, etc. Help me “level up”, congratulate me for doing so.
• Make budgeting suck less. Most try to force budgeting at the category level, but the fact is setting budgets on categories is arbitrary, and therefore budgets will be broken. Let me set a budget on my “wants” encourage me to beat my budget by giving me something in return. Many recommend the 50/30/20 method: 50% on needs, 30% on wants, 20% savings. Once you “want bucket” runs out, you should stop spending on wants. Analyzing how you spend your want bucket will help you ensure you are spending money in a way that is aligned with what makes you happy.