FinTech paradigm: digital consolidation of personal finance
One of the main challenges currently facing the financial sector is the possibility of developing an increasingly digitalized activity based on data and personal management. In this sense, the FinTech sector, oriented towards the articulation of technology and finance, is a fundamental axis for driving this transition.
According to the widely commented report “Las empresas fintech: panorama, retos e iniciativas del Banco de España“, the rise of the FinTech sector is evident in the increase in investment it received during 2021: 150 points compared to the same period during the previous year -around 338 million euros-.
Against this backdrop of steep growth, the financial industry and legislation are seeking to build a regulatory framework that addresses consumer protection and the integrity of Personal Finance Management, or PFM, tools within this new paradigm. Another example of this is the EU’s revised Payment Services Directive or PSD2.
Personal Finance Management in FinTech
Personal Finance Management, or PFM, refers to the set of tools and concepts that focus on the effective management and disposal of financial resources at a personal level. In the field of FinTech, this refers to IT solutions developed to offer digital management services for individual users.
While these tools are essentially the same as business management systems and online banking models for the provision of banking services, PFM tools are oriented towards the use of particular economic agents in the everyday environment, such as payment methods, savings and investment, credit and lending, and many other banking or financial services.
This type of software is developed specifically for the purpose of simplifying and managing day-to-day economic operations related to saving and improving income performance. For this reason, various artificial intelligence systems are used to automate operations and produce financial performance reports on a regular basis.
Financial management tools (PFM)
Through the use of so-called Application Programming Interfaces (APIs), financial information is standardized to flow between different applications by a set of specific protocols. As a result, digital banking services can use this information to improve their performance and, in the case of PFMs, offer a number of tools that are not to be missed.
Personalization of banking services
It refers to the use of applications that allow a service to be tailored to the particular needs of customers based on multiple factors: spending, income, investment or saving objectives. In this sense, many online banking applications already have this type of function associated with income management.
While there are certain commercial or financial operations that we carry out sporadically, or require prior study, most of the regular operations that we carry out can be automated. These include the payment of services or subscriptions, as well as savings methods. Indeed, these types of options are common to improve income performance and simplify management.
Due to the massive data processing and operational capabilities of PFM tools, it is possible to use algorithmic models and artificial intelligence software to analyze the performance of financial activity. As a result, these tools offer banking advice and financial suggestions that allow tailor-made services to be developed.
Banking responsibility and commitment to the customer
In order to be competitive, this business model must necessarily offer tools to maintain responsible management of the user’s economy. In this sense, it is possible to obtain different performance solutions dedicated to responsible energy consumption, efficient distribution of income and customized financial forecast, according to the specific business profile and activity.
As in the previous case, competition in this new FinTech ecosystem has two axes. On the one hand, the need for data as a raw material and, on the other, the prominence of the user as the producer of this data and consumer of the services that use this data. Loyalty programs in digital banking offer incentives and multiple benefits to encourage the use of these services.
The use of technology in banking has greatly improved the management of personal finances and banking advice. In fact, the latest PFM solutions are very useful tools that you should start using in your daily activity.