When John Penberthy-Smith convinced his student daughter to download a financial planning tool, he hoped to pick up some insights into the way millennials use technology to save more money.
As customer director at the UK’s Money Advice Service, a government-backed organisation that provides free and impartial guidance to consumers, he had watched a wave of apps and services come to the market and wanted to see first-hand how they worked. The veteran marketing executive was impressed by the results.
“She is now a massive convert and has saved hundreds of pounds using it,” he says of Plum, one of the more popular tools. “It’s a great example of using new technology to try something that seems hard to do, like creating a positive savings habit.”
Plum launched just over 18 months ago and has attracted more than 100,000 users. It is an artificial intelligence service, known as a chatbot, which works on Facebook’s Messenger tool. Users provide the service with access to their online bank accounts and Plum’s algorithms assess their spending habits. The chatbot then gives recommendations on ways to save money, as well as allowing the user to set goals and check their balance easily.
The app has recently started offering investment products, encouraging its customer base to put their savings to work in funds.
Mr Penberthy-Smith says the rise of financial planning apps and tools is a direct result of consumers taking greater control of their personal finances through online banking.
He points to a handful of other tools that are generating a lot of interest. These include Monzo, a branchless challenger bank that operates through its app, Squirrel, a budgeting tool, and Atom Bank, which offers mortgages through its app.
What links these, says Mr Penberthy-Smith, is their simplicity. He adds that they meet the four elements the UK government’s Behavioural Insights Team, or so-called “nudge” unit, identified as being crucial to encouraging changes to behaviour: that they are easy to use, attractive, socially engaging and timely.
“We have seen a surge in digital aids for people with their finances over the past five years,” he says. “It’s a really vibrant sector.”
Another service that has caught on across Europe is Revolut, which has attracted more than 2m users in the past 18 months. The challenger bank has several features that help customers have greater oversight of their finances.
Customers receive a pre-paid debit card for daily spending, which they can keep track of on their mobile phones. It provides instant announcements on the app when purchases are made, so users know when transactions have gone through.
Most people feel nervous and afraid when looking at their finances …We are saying to them, ‘Relax, we are going to work through this with you
Revolut has also developed a savings feature, which rounds up purchases to the nearest pound and puts the difference into a separate account until customers meet their savings goals. “It’s a simple way to spend and save at the same time,” says Chad West, head of marketing at Revolut. The company, which operates across Europe, plans to launch in the US, Canada, Hong Kong, Singapore and Japan by the end of the year.
Financial wellness apps and tools have also proved a hit in the US. One of the more popular services is Clarity, an app that has racked up more than 1m users since it launched. Goldman Sachs, the investment bank, bought Clarity in April to attract more customers to Marcus, its new retail banking arm.
The app collects data from users’ current accounts and credit cards then makes suggestions on loans they could refinance, subscriptions they could cancel or bills they could renegotiate.
It is designed to put people at ease. “Most people feel nervous and afraid when looking at their finances,” says Colin Kennedy, managing director at Marcus, who was chief operating officer at Clarity before the acquisition. “We are saying to them, ‘Relax, we are going to work through this with you’.”
The app is designed to be as easy to use as possible. “Everything they do is with as few clicks as possible — it’s a simplistic environment,” he adds.
Clarity, while free to download, takes commission for new products and services that users sign up to use through it. As consumers sign up to financial apps and provide them with access to their bank accounts, there is increased danger their personal data will be compromised and fraud.
Mr Penberthy-Smith says the risk can be minimised by consumers sticking with well-established brands as well as those that receive favourable reviews on trusted websites. “We would encourage people to start with banking apps because the banking industry has a high level of security,” he adds.