While apps have been prompting smartphone users to get in their daily steps since 2012, financial institutions have the capability to use mobile to help foster another kind of customer wellbeing: healthy financial behavior.
And this capability has the potential to address a pressing need. According to a report released by the federal Bureau of Economic Analysis, the average American savings of indisposable income hit a low of 3.8 percent in of June of 2017. This is well under the 10 percent amount recommended to save sufficiently for retirement; by comparison, the savings of indisposable income between 1950 and 2000 averaged 9.8 percent. And, according to a survey by Bankrate, just four out of 10 Americans today have savings they’d rely on in an emergency.
An additional report by CFSI found that 57 percent of Americans are struggling financially and a MyBankTracker survey found that close to a third of Americans don’t spend any time managing their finances. But it is often those struggling the most who have the least amount to the financial planning services and knowledge they would benefit from.
Enter the relevance of personal finance management applications.
While the appeal for personal finance management applications may be obvious—making it easy to categorize expenses and show customers just where they spend their money—encouraging widespread adoption hasn’t been easy. One of the largest challenges for banks and financial technology companies in recent years has been convincing customers to adopt PFM applications—aka: change customer behavior. According to tech research and advisory firm Celent, despite a hard sell, usage of PFM apps has yet to surpass 10 percent.
But, as Peter Tilton, Royal Bank of Canada’s senior vice president of digital, told American Banker, the Canadian bank hopes the forecasting capability of personal finance startup Personetics’ technology will be a large draw for their own consumers.
“Rather than looking at the rear view mirror, which is what pretty much all the PFM and money management tools do now, it’s a look out through the front windshield to model ahead with your customer about what their spend is going to look like and help them with savings,” Tilton said. “We think it will be very helpful to customers to increase their overall financial well-being.”
Personetics Cognitive Banking applications will be used by Royal Bank of Canada (RBC) this fall to deliver two new services that provide AI-powered personalized financial guidance and an automated savings program through the bank’s award-winning mobile application.
In September, Personetics Cognitive Banking announced a partnership with RBC to use artificial intelligence to provide personalized financial guidance and an automated savings program through the bank’s mobile application.
Traditionally, financial advice services are profit driven. But this new product will help users of any financial means forecast their own cash flow and start saving so they can grow their wealth.
The app’s optional automatic savings feature will be able to review customer behavior pattern history to forecast for the weeks ahead how much money a customer will need for the basics of living and then stash surplus cash into savings. The technology will also help detect unexpected changes in user activity—such as a late paycheck —and adjust savings accordingly.
“It will maximize the customer’s savings benefits, and it’s completely personalized. We think it’s a good use of AI that will help a lot of people, especially those Canadians that live paycheck-to-paycheck,” Tilton said of the automatic savings program.
And the investment in this technology just might be working. Over the last year, following the roll out over 20 new capabilities in-app to over 3 million mobile customers, RBC has reportedly seen about a 40 percent jump in financial transactions on mobile. The addition of Personetics’ technology is just one more carrot for mobile users.
Cadence is a fintech reporter and writer at Fintech Unltd, where she covers the changing landscape of financial technologies. Previously, Cadence interned at Psychology Today, Business Insider and the Wisconsin State Journal. Cadence is interested in how science and technology intersect with power and culture and is curious about the world we are creating for tomorrow, consciously or not. She graduated from the University of Wisconsin–Madison in 2017 with degrees in Journalism and Chinese. Send tips and story ideas to Cadence at [email protected] You can also follow her on Twitter @cadencebambenek.