E-wallets are becoming the preferred payment method, but they can also be an instrument to enhance banks’ digital offering by putting financial management tools at the user’s fingertips

 

Digital wallets are gaining ground when it comes to making payments and keeping track of transactions. This allows financial institutions to use different technologies to analyze the data and help customers to better manage their finances.

Personal financial management (PFM) is a digital service that helps organize and chart daily, weekly, or monthly income and outgoings in order to forecast expenses and savings.

This feature has the financial well-being of mobile users in mind, making it an excellent addition to existing e-wallet offerings.

Purchases using e-wallets in Spain, for example, are expected to double by 2025, according to an analysis by global consultancy Bain & Company, indicating that young people are moving away from using physical credit cards. The reports shows that in the US, the percentage of people under 25 who don’t use cards grew by 80% in 2020 alone.

These demand indicators clearly highlight a need for new service options within e-wallets to continue to engage the public with user-centric functionalities.

 

Features of a Personal Finance manager

The purpose of PFM functionality is to offer added value to the user through the analysis of complex data such as expenses, income, and debt, to help them achieve their financial goals. That requires tools that help separate, categorize, and highlight information in a simple way.

Features include:

  • An intuitive interface, which provides a detailed breakdown of transactions such as purchases, bill payments and salary. They also highlight any hidden or unexpected expenses such as taxes, fees, or potential duplicate charges.
  • Graphical summaries that help to see operations more clearly.
  • The ability to make personalized recommendations, such as a monthly forecast of outgoings, based on the pattern of previous expenditure. Also, where to cut back spending to achieve a specific goal.
  • Gamification, e., incentives to help achieve a goal. For example, banks can offer lower interest rates for higher amounts of savings or offer discounts and promotions for flights and accommodation if the customer is saving for a vacation.

Planning is an important consideration for bank users. According to a report published in March by the Peruvian Banking Association, three out of four people are interested in improving the management of their household’s finances and 23% believe that banks should provide financial education.

Some banks offering personal finance managers are already seeing use cases with positive results.

The Credicorp Group, the largest financial services firm in Peru, used its innovation center to create a virtual piggy bank called Warda that acts as a customizable tool for establishing savings plans and targets.

And Spain’s Santander introduced Prosper in March last year for users in northern Europe. The application takes advantage of open banking to centralize the incomings and outgoings of user across their different banks and accounts.

With a user-friendly and intuitive interface, the lender is able to take advantage of access to user data in order to cross-reference information and deliver it as a value-added service.

In Latin America, the rise of open banking also represents an opportunity to explore new business models and personal finance products.

 

Complementary digital financial products

The purpose of financial planning is often to prepare for large, medium-term outlays, such as a house, a car or children’s education.

Through PFM functionality, financial institutions get involved in, and help with, the realization of the client’s plans and dreams, which creates a stronger, closer relationship.

Enabling savings tools within the same e-wallet also improves the user experience substantially, by minimizing the hopping between applications to access financial advice. This is also in line with a macro trend in the e-wallet world: the most successful e-wallets are those that concentrate the largest number of relevant services for the consumer.

Accordingly, BBVA in Mexico introduced a solution called Pagaré, a fixed-term savings plan that can be contracted from the app or online banking. With clear language and information, users can make a deposit — the minimum amount is 2,000 Mexican pesos (US$97) — see how much interest they will earn, pick the term, and start earning.

In the immediate future, we’ll see banking applications and wallets merge into multipurpose apps, which will continue to grab the attention of consumers.

Adding a personal finance manager that educates users and improves their finances, is a step in that direction, and one that will pay off for both customers and institutions.

 

Andy Tran