Can the Money 2.0 Startups Get Their Finances in Order?

20 Comments

Although I personally find the low national savings rate scary, for the myriad of next-generation personal finance sites, it’s an opportunity. Most pitch their sites as a resource for younger Americans trying to figure out where their money goes each month — and to help them keep their bank accounts out of the red. And unlike many of the web-based consumer applications out there, bringing personal finance to the web makes sense. There are also numerous revenue opportunities for them, which means some of these companies will survive.

By taking financial applications off the desktop, this next generation of services is pushing two separate innovations. It’s putting data on the Net in a way in which that information can be aggregated (think how powerful a tool like Mint’s analysis of Starbucks spending in various regions could be if a Starbucks investors could see that amount grow or decrease over time) while also allowing complete access to that data from anywhere. That’s an important benefit for those trying to stay on a budget or even for monitoring an account for fraud. As mobile browsing improves this will become even more prevalent.

Many of the sites don’t support more advanced financial transactions, such as tracking a mortgage or following investment accounts, although Geezeo and Yodlee do and several others, such as Mint, say they are adding those features in the coming months. Even more interesting are the sites such as Voyant and BoulevardR, which give users a holistic picture of their financial goals, tracking how current savings rates and spending will affect retirement or plans to buy a boat at age 50.

Into this growing hodge-podge of services (there’s a BarCamp in San Fransisco devoted solely to personal finance in March, and the inaugural Money:Tech Conference next week) comes Quicken, which launched its Quicken Online product earlier this month. So far it’s the only one I found that’s charging a subscription fee for its services ($2.99 per month), but it’s also a known brand in the space. Wesabe plans to charge subscription fees, but has yet to do so.

The subscription model is going up against what are essentially two different models built around advertising. In one, the site act as a lead generator for financial planners and products; in the other, advertisers are putting banners and other such ads directly onto the site.

While the lead generation-supported sites seem less trustworthy (is the annuity Bank A offers really the best product or did the bank just pay more than the other providers?), their creators are trying to strike a balance between getting paid and providing a useful, free service to consumers. Sites such as Mint push financial products only if they save a user money, while a site like Voyant allows a community of users to rate the benefits of a financial product being offered. Geezeo is close to this model; it offers users the opportunity to comparison shop among different financial products.

Others seem to have a murkier view of their plans for monetization. The CEO of recently funded SpendView Nikhil Roy tells me that the site will take advertising based on whether the product can help the customer save money or the planet. Others tell me they are focused on getting users rather than revenue. As the economy slows, more users may be inclined to try the sites, but if those without solid financial footing slip, it could trip up the entire sector for a long time to come.

20 Comments

Steve Chen

Hi Stacey,

I just saw your post since we were reading up on Voyant – thanks for summarizing some of the companies that are out there. I noticed you covered a number of the newer online finance and retirement sites – in particular BoulevardR. BTW – I’m the founder of NewRetirement.com and we’re trying to build out a useful resource for people focused on retirement. I’m curious how we get on the radar of someone like you better and what you and your readers think of it.

Best,

Steve

Dave McClure

hi stacey –

>>with regard to Dave’s point about Quicken validating acquisition opportunities in the market, I’m worried…

hmm. well, i don’t believe that acquisition is the only exit opportunity for Mint — and it’s very early to even begin speculating anyway — but i’m pretty sure there are plenty of non-aligned players who would consider either Mint or Wesabe or other smart Financial 2.0 sites a great addition to their platforms.

even with the potential merger/removal of one of those big players (Yahoo, by Microsoft), that still leaves:
* Google
* Microsoft/Yahoo
* IAC
* AOL
* eBay
* Amazon
* Intuit
* NewsCorp/MySpace
* Facebook
… and about 30-40 other large players who aren’t always on everyone’s tongues.

personally i believe people are over-reacting to the [potential] removal of just one acquirer. if anything, the long-term trend over the past 3-4 years has been a growing plurality of profitable internet acquirers, and an acceleration of M&A deals for promising internet startups.

recent recession concerns notwithstanding, the overall market for online ecommerce & advertising continues to expand rapidly, and should provide a relatively long period of opportunity for both startups & large internet players for quite some time to come. if and when online spending levels off & market consolidation down to just 2-3 players occurs, then i’d start worrying. however, my best guess is that day is at least 5-10 years away, if ever.

my .02,

  • dave mcclure
    [investor & advisor to Mint, friend of extended family with O’Reilly / Wesabe investor]
jobdud

I use Mint.com as a central place to manage my accounts and it’s a great way to see everything on one page. I used to use Quicken but it’s an application and the startup times are too long. Mint.com is in and out fast! Plus the online version of Quicken charges! I think Mint.com is a real winner.

Stacey Higginbotham

After reading your comments I realize I missed making a huge point in the post. Every customer segment (I would divide them by goals and net worth) is looking for a different product. There’s s certainly an audience who would use a Wesabe or Mint alone, but there will also be plenty of people who bring that information to their financial planner or accountant to take the advice up a notch. Likewise, there will be people who are happy using desktop finance tools or surrounding themselves on occasional evenings with their bills, statements and a calculator. Those people might love playing around with a holistic site. So, many of these sites could thrive.

However with regard to Dave’s point about Quicken validating acquisition opportunities in the market, I’m worried. While it may be true that Mint or other ad-supported sites would do well with a trusted bank partners, the fact that they advertise for other financial products is going to be a problem, either for the buyer or for the customer who perceives that the advice may now be “fixed.” That leaves them with Intuit or perhaps a portal company as a buyer. If Microsoft does get Yahoo!, there’s one less potential buyer on the market.

alain

Full disclosure: I am an investor in the space in general and in Kublax in particular.

alain

I am with Dave regarding his comments. .

I’ll add one more thing: These financial aggregation sites provide users with a very valuable service beyond savings and affiliation deals. It is a nightmare for most people to deal with and reconcile their paper statements, online statements and other financial information. So my take is most people would love a useful, simple, intuitive service rather than the mess that exists today. But, as demonstrated by some of the comments above, some people love spending their evenings with a calculator and all their paper statements on the table figuring things out. Frankly I have better things to do and as per Dave’s comment, so do most people.

Matt Iverson

@ Dave
I’m curious to hear your take on Stacey’s opinion that more “holistic” planning sites like Voyant and Bouelvard R offer a more interesting solution than existing cash-flow tracking sites like Mint.

One the one hand, these sites offer much lower barriers to trial for the mass part of the market that has security concerns, since they generally don’t ask for any personally identifiable information besides an email address (if you choose to register). They also have the ability to model the impacts of financial decisions, which helps with figuring out how they can get on track for a secure retirement (by far the biggest financial concern for Americans).

On the other hand these “holistic” sites can’t show you exactly where your money is going or point you to specific products that can save you money based on your current cash flow (though I imagine they will ultimately be able to offer product solutions, based on the user’s financial goals).

Another issue for these sites is that they may not have the user transaction data that companies like Mint does. Therefore, they can’t verify user inputs, though for forecasting and what-ifs this isn’t so important as long as the user is relatively close. The transaction data, particularly on investment accounts such as IRAs and 401ks, is also useful for tracking progress over time.

One question on segmentation- I wonder how many people whose finances are in such bad shape that their big financial issue is just making rent for the month would actually use a site to track their finances (or are they attracted by the proposition: if you give us your account information, we’ll save you $X). My guess is that these folks are not particularly savvy when it comes to finances and that using an online tool to evaluate their cash flow isn’t high up on their list.

Sites like Boulevard R seem to be attracting consumers with assets and incomes well above the national averages.

Full disclosure, I’m one of the founders at Boulevard R.

francis

Just a take on the statement “low national savings rate” … this has been bandied out a lot as detrimental to America, but the counterparty has not been given as much exposure, that is the investment rate. From primary economics there are 3 income variables = S + I – C. Even though America has a low savings rate as compared to Japan or China, I dare say ( without references that is ), the investment rate beats both put together clearly. Even insurance can be seen as a investment, when amortized as calculated risk.

Generally, IMO, savings ( defined as non-utilization of as asset ) is generally bad and non-productive. Savings rate should not be confused with savings account, because more often than not, these have interests and so have utility, and for the gain of interests, the risk of the bank holding the account folding up must be accepted. IMO, with proper calculated risk strategies more asset utilization can be done, which Americans have shown they are adept at. The current financial crises should not distract anyone from the benefits of asset secured loan arrangments. What is happening now is essentially a panic, which is getting to a head when combined with trade deficits, massive media manipulation, an unpopular war and labour arbitrage.

As for the technology aspect, as per the article. These finance internet plays should focus on the financial aspects of personal finance instead of the technology aspects. Any of them (none of which I can think of now) that solve financial problems (which paypal does very well : the problem of micropayment systems) would succeed. But if they just think that adding a .com to their names would ensure success they most be dreaming.

As for prosper.com, which people think is a workable financial technology product, what they fail to realize is what financial problem is it solving. From what I know about it, it brings lenders and borrowers together, which isn’t particularly innovative or even smart ( reasons why to long to put here ), but the real function should be risk mediation. from what I hear, it does that very poorly. It can do better, if it wishes to do the financial math but I assume is it more interested in employing more User interface designers than actuaries to determine risks.

Dave McClure

what, are you kidding?

Quicken Online is the best commercial ever for Mint & Wesabe.

2 brand-new startups with FREE products are trying to establish market awareness, and then a huge company steps in and starts spending money to educate the market about their NON-FREE products?

that’s a gold-mine. talk about riding on somebody else’s coattails.

(and let’s not even talk about the fact that regardless whether QuickenOnline is successful, its mere existence creates acquisition interest from other platform players.)

damon

QuickenOnline is bad bad news for the Mints and Wesabes. Even at $3/month, QO is just going to kill it with brand recognition and trust.

Dave McClure

@ alex :

well actually, i think the model will evolve to be such that:
1) without logging in, you can see suggestions on generic ways to save money, lower / raise your cc / savings rates, and
2) if you login, you’ll see even more customized & specific deals

you’re correct that it might require a “leap of faith” to get to the better, more specific suggestions… but i think for most folks that’s not so daunting. if you provide info, you get a benefit… simple as that. i do understand it might not work for you & others… and that’s ok, it won’t be perfect for everyone.

@austinandrew:

re: “entering paypal login info being violation of terms of service”… i think you’re confusing my comment. mint doesn’t accept paypal logins (currently anyway). i don’t know the rules on specific bank TOS, however Mint has a partnership with Yodlee to do the back-end account aggregation, and Yodlee has been working for over 5 years with ~10,000 financial institutions across the country to integrate & provide various services. Yodlee’s clients include folks like BofA, Fidelity, Citibank, etc. again, it’s up to the individual what they decide to do with their data.

(fyi, on the other hand, prior to acquisition by eBay, PayPal did let users enter the eBay login info to PayPal, so that PayPal could update user’s auction info with PayPal payment buttons for accepting credit card and other payments. whether or not this was completely legit, users seemed to like it, and it worked. in the end, eBay decided that it was such a useful service that they had to acquire it.)

in summary: you can’t please everyone all the time, but there’s a big audience of people out there whose security requirements are lower on the priority list than saving/making money. for those willing to create services to address that market, opportunity awaits.

  • dmc
David Mackey

I’m currently using Mint and had tried Wesabe. Mint works decently, though doesn’t support enough accounts yet. I’m waiting for the one service that will offer all the features – integration with my accounts – whether checking, savings, mortgage, or auto loan.

Raj Sundar

fncentral.com (http://www.fncentral.com/) was launched in 1999/2000 – perhaps the first online personal finance management application. It had limited success at the time. We have come a long way now with more people filing taxes online than any time before. Yes ‘trust’ was an uphill battle then. Our approach at the time was to not go to the end user directly but to offer the services through the home banking interface of their favorite bank which the user inherently trusts and hosted by the FI. This consolidation happened with online bill pay companies as well. Now most of online bill payment happens through the home banking interface. With 2 factor authentication and many privacy issues being addressed, the adoptions rates should be higher now.

Alex

Dave,

You most definitely bring up some very valid points. But, I’m just stating my opinion having worked in the internet money space myself. Don’t get me wrong, I love what Mint is looking to achieve. As a matter of fact the back-end passive affiliate model is ingenious. BUT, there is a huge bridge to close here. What you and your team did at PayPal was awesome. Think about that for a moment. Your model at PayPal aligns more with Prosper than Mint today. At PayPal money transfer followed as transaction. At Prosper is slightly different money transfer followed by transaction. Even if you are to look at the existing PayPal model today it is seen as transaction to payment so it really has not evolved that much (except got much friendlier). At Mint the model calls for one to show your entire hand with some possible/potential savings on the back-end; the psychological barrier here is that I must expose my complete finances and hope that I’m happy with the existing affiliate programs you are publishing. This model is very different from PayPal and Prosper. When I show Mint my credit card is 12.99% they come back with some good credit card alternatives, but, I can find those same alternatives (actually more) at CreditCards.com. The hurdle here for your customer is that CreditCards.com doesn’t require one to first disclose ALL their private information.
Again, don’t get me wrong, because I want Mint to succeed. But, I just don’t believe that Mint can hit critical mass as the model stands today. Of course the definition of critical mass can be defined one thousand ways. The Mint model has to be two tiered:
1) Direct revenue share with partner financial institutions. How about PayPal as a Partner?
2) White label/oem offering for larger financial institutions.

austinandrew

Dave, I also see another problem here: Isn’t against the terms of service of most online banks (even PayPal??) to give your login to someone else (e.g. Mint)? It seems that it would also void any guarantees of account insurance.

Dave McClure

@DS: well, actually yes i would say you’re missing the point.

Security & Privacy are features, just like everything else. they’re not absolute imperatives — different people view & value them differently, and make tradeoff decisions in how much security & privacy they need as compared with other benefits which entail less complexity.

SOME people value security & privacy so much that they’ll never give their financial info & store their passwords with an online service, due to the perceived risk (whether accurate or not) of a security breach or identity theft.

OTHER people realize there are risks, but that they would rather save $1000 on reducing their credit card interest rate, increasing their savings account rates, or making better / less expensive purchase decisions.

STILL OTHER people don’t give a shit about either of these, and just want to spend as little time as possible looking at their finances, but want them all in one place & to be simply be notified if they are approaching or exceeding a credit limit, a late fee, or any other event where ONLY THEN do they have to pay more attention.

in summary, i make the case that there are MORE people out there who care about the latter two issues than the first, and that there are HUGE markets of people who will choose functionality over some absolute level of security which SOME people think they need.

neither group is right or wrong, but people who think there ISN’T a big market of folks in the “care less about security” category are missing out on a bunch of market opportunity & product innovation.

again, i reference the case of PayPal, where many merchants and consumers don’t feel comfortable giving their info to a 3rd-party hosted payment service. that’s fine, they don’t have to… but the REST of the folks using PayPal include over 100M consumers and 10M small business merchants who like using it, and are conducting billions of dollars in transactions.

different strokes for different folks.

  • dave mcclure
DS

@Dave: I am with Alex on this one. PayPal was a service which emerged following a centuries-old pattern that in order to do business with each other, parties often needed a third entity which they both trusted.

Mint.com and others however do not necessarily follow this pattern – they are about making it easy to do personal finances. They are not a necessity, they are a “nice to have.” Or I am totally missing the point. And asking my login and password to my bank account for a “nice to have” seems like too much…

Re 3 groups of people you mentioned: (2) is further subdivided into “those who will evaluate and decide to use the product” and “those who will evaluate and decide not to use the product.”

I personally would like to see personal finance startups take a slower approach – at the beginning, help me benefit from service while asking as little private info as possible. Then with time, as they prove their value to me as a customer, they can engage me further in more sophisticated ways such as access to my bank statements etc.

There are companies who follow this strategy, and it’s an uphill battle to say the least. Mint’s GUI is the best I have to admit. So at least you guys are doing that right.

Dave McClure

Alex: i think your concerns about trust & privacy are overblown, and perhaps are more a reflection of your own [likely minority] demographic.

[full disclosure: i’m a Mint. com advisor/investor]

from my years of working at PayPal, we found that there were plenty of people who had less concerns about trust / privacy, and who cared more about features, functionality, and getting paid / making a transaction.

while this isn’t necessarily everyone’s perspective, it’s a BIG part of the market that most folks overlook, because they’re not part of it. most people in Silicon Valley or who are part of the Internet elite are upper middle class, net worth > $250K, and are concerned about trust & privacy & losing what they have.

however, the vast majority of people are those who have networth @ $-50K to $100K, and these people care a lot more about saving money / finding better deals, and less about losing the money they have.

ultimately, there are 3 kinds of people:
1) those who care so much about trust/privacy, they’ll never give out their info
2) those who care some, but will evaluate the tradeoff of security vs feature benefits
3) those who really don’t care, and want to know if they can save / make enough money to make rent next month.

the latter 2 audiences are likely the majority of individuals, and possibly the majority of disposable income as well, and are the primary target markets for most of the consumer-facing “Money 2.0” startups mentioned above.

my .02,

Alex

From previous experience in web financial services I feel that there is a major uphill battle for a few of these companies. Not because their technology stinks, but, rather the “trust” factor.
From a technology standpoint the level of sophistication a company such as Mint offers is appealing. However, there is little chance that I see Mint hitting critical mass as a standalone company. Not to many people will give their “real” information to such a site. That said, a service such as Mint would become a “bigger” success under the flagship name of a brick and mortar bank or even a company such as Charles Schwab.
A company such as Prosper is definitely going to change the landscape (and already has) Why? Because it limits the requirement of personal financial information in order to succeed.
In other words using Mint a person must disclose ALL their private info in order to get a true picture of their value proposition, whereas, using Prosper you can transfer a a few dollars and put it to work without having to disclose your entire financial foundation.
A company such as Intuit will be interesting to watch here. Yes, they have a good level of trust in the market, but, how much consumer business are they doing aside from electronic taxes. If Intuit Product Managers have found a way to bundle or offer similar one click “Mint service” directly from their consumer tax offering they will DOMINATE the market.
Maybe a company such as Mint should look to roll into another Money 2.0 model such as LifeLock that seems to have filled a HUGE gap in the market. Using LifeLock, a person must give up their social security number, and based on the subscriber growth they are seeing this type of move would make sense for Mint.

IMO

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