Many people may wonder what a PFM is. PFM stands for Personal Finance Manager.
A PFM is a tool to help clients understand their financial situation and improve their money management.
How does a PFM work and what are its benefits?
This system has great advantages for both users and financial institutions.
Benefits for end users
- Have control of your money in a simple way.
- Visualize the general situation of your finances through easy-to-understand graphs.
- Unify your financial needs in one place.
- Categorize expenses automatically, they can be filtered, edited and divided.
- Control expenses and savings through individualized budgets.
- Saving tips by type of expense.
- Plan and track goals.
Benefits for banks
- Helps attract customers. Many customers are willing to switch banks if they are offered a better tool for managing their money.
- Increases sales. With the implementation of this tool, sales can be increased by up to 25%.
- Creates more profitable customers. The type of customers attracted by this tool are up to 2 times more profitable.
- Encourages greater use of apps and web pages. The use of these services increases the sales of others.
- Creates more loyal customers. It is possible to better retain customers using PFM.
What is financial scoring and how is it calculated?
Financial scoring is a bank evaluation system used to calculate the possibility of non-payment of a loan through the automatic analysis of a client’s solvency. With this information, the financial institution evaluates the risk of customers objectively in order to make decisions.
To calculate the financial scoring, different factors are taken into account:
- Employment situation: type of contract, self-employed status, etc.
- Personal situation: age, marital status and dependents.
- Outstanding debts.
- Credit history.
With all this information, the aim is to predict whether the client will be able to repay the loan, according to what has happened on other occasions with people with a similar profile.
If a client has a high credit score, it is likely that the bank will accept your financing, since you have good creditworthiness. On the other hand, if your score is low, it is difficult for the bank to approve the application.
The scoring calculation results in a score of between 300 and 850 points. It is obtained as follows:
- 35 % corresponds to the payment history, i.e. whether you have met financing installments on time.
- 30% has to do with credit utilization. It is given if the person has consumed less percentage of credit.
- 15 % is obtained by the length of the credit history, i.e., the longer the individual has been using the financing, the higher the score.
- 10 % related to new credits. The more credits, the lower the score.
- 10 % depends on the types of credit used. The more types, the higher the score.
PFM and open banking
As we have seen, PFM serves to unify all of a user’s data about bank accounts and all of their finances.
On the other hand, the term open banking refers to the practice of sharing financial information digitally through platforms and applications. In this way, information is transferred securely and with the customer’s consent.
When a PFM system is coupled with open banking, it can offer a personalized, more realistic and efficient experience. This is because the system will have access to all the updated financial information and will display graphs, alerts and any other utility with greater veracity. Thus, the user will be able to make decisions regarding their finances with greater confidence and less margin for error.
A PFM is a tool that helps users to unify their financial information, plan and save. It has great benefits for users, such as having an overview, being in control and planning. But it also has advantages for banks, such as attracting more loyal and profitable customers.
Financial scoring is the risk assessment system used by financial institutions to make decisions on whether or not to accept an application for financing. To calculate it, customer characteristics such as income and other aspects such as payment history are taken into account.
The union of PFM and open banking makes the system much more reliable and real, since it has updated financial information.