App your way to financial health

If you’ve already fallen off the New Year’s financial resolution wagon, don’t worry.

There’s an app for that.

Several in fact, and more all of the time, the Center for Financial Services Innovation’s (CFSI) chief program officer John Thompson said. CFSI’s mission is to improve the financial health of Americans, especially the underserved, by shaping a robust and innovative financial services marketplace with increased access to higher quality products and practices.

John Thompson

They work in several areas. Through research and analysis, CFSI seeks to understand the challenges and opportunities all sectors have to achieve financial health. Building on that information, CFSI provides consulting services that guide organizations through every stage of the product development cycle. In partnership with JPMorgan Chase, CFSI’s Financial Solutions Lab identifies, tests and brings to scale innovations that help Americans improve their financial health.

“These companies take complex, behaviour-related things that when automated allow for adaptation to individual consumer circumstances,” Mr. Thompson said. “That fits with where we’re going at CFSI.”

Since the recession, a growing number of extremely bright entrepreneurs, many indelibly shaped by that event, have dedicated themselves to solving the problems they have seen or personally experienced. Armed with both business and technical acumen they are developing creative ways to address problems more prevalent than many think.

“Not all financial lives work in a steady, predictable way,” Mr. Thompson said. “Consumers struggle with predictable incomes and the evolving nature of work.”

More people are working in part-time jobs or ones without guaranteed hours, Mr. Thompson said. The average American sees 2.5 significant income fluctuations every year. That unpredictability doesn’t allow them to plan for the future like someone with more job and income security can.

Mr. Thompson spoke of several companies providing services that can help you restore that lost financial discipline. Digit’s   motto is “save money without thinking about it”. Combining research in behavioural psychology with technology, Digit analyzes the user’s income and spending patterns and automatically saves acceptable amounts.

Digit users earn one per cent cash back (paid quarterly) on their savings and can make unlimited withdrawals. Funds are FDIC-insured and protected by 128-bit bank-level encryption.

Dave protects its users from contributing to the $33 billion in overdraft fees banks rake in every year, Mr. Thompson said. More than one in four Americans have been in overdraft in the past year, with more than 10 per cent having the experience eight times. The typical interest rate on overdraft fees is 17,000 per cent APR.

By tracking spending patterns and automatic withdrawals such as loan payments and utility bills, Dave alerts you when you are in danger of overdraft so you can move money into that account or request an interest-free advance of up to $75.

“The ability of these services to adapt without me telling them what to do is one of the most interesting things about them,” Mr. Thompson said.

Many people find finances intimidating, Mr. Thompson said. They are aware they lack knowledge, but they often don’t trust financial institutions and the products and services they peddle. Enter WiseBanyan, the first financial manager to not charge investment management, trading or rebalancing fees. Users set up a financial plan with help from WiseBanyan, who will also help manage investments. They earn revenue by selling a la carte services users can opt into.

Apps like Digit, Dave and Wise Banyan employ technology to provide value from the data we generate. The technology identifies trends in our behaviour and uses them to help us save money or to prevent us from losing it.

The concept points to interesting issues that are commanding the attention of regulators overseas. PSD2 is an EU directive allowing consumers and businesses to use third-party providers to manage their finances. The financial data EU citizens generate can no longer be exclusively used by their financial services provider.

Interesting timing, because come this May 25, the EU’s General Data Protection Regulation (GDPR) takes effect. Companies victimized by data breaches can be fined the greater of up to four per cent of annual global turnover or €20 million.

So banks have to open their data stores to more sources and risk hefty fines if those stores are breached?  Many are questioning the GDPR for that very reason.

Other regions of the world should pay attention. The GDPR applies to companies based outside of the EU who conduct business within it. The increasing awareness of data generation and stewardship will mandate regulatory attention by all countries.

CFSI anticipated this trend and has been working for years to establish guiding principles that protect the rights of citizens. In September 2016 they released CFSI’s Consumer Data Sharing Principles: A Framework for Industry-Wide CollaborationFinancial institutions, data aggregators and third-party application providers must provide data to consumers that are available, reliable, secure, user-permissioned, and limited to application functionality.

“We worked with network members to put together consumer-focused principles around data access and sharing and discussed what would framework look like,” Mr. Thompson said. “We have to find common ground around a contentious issue that’s really critical.

“Ultimately we have to sort this out in the context of the United States.”

With organizations like CFSI and community-minded entrepreneurs leading the way, financial services is hopefully undergoing a significant mind shift, Mr. Thompson hopes.

“Financial services companies ought to be financial health companies.”