Putting The Personal Into Personal Finance
In the recently leaked, and subsequently confirmed, Labour party manifesto was a pledge to cap energy prices in the UK. At the heart of the pledge was the inertia that ensures that a small number of people switch their energy supplier each year, thus ensuring that a great many remain on tariffs that are considerably more expensive than they need to be.
It’s a scenario that is remarkably out of touch with so much of modern life. It’s a life that is increasingly fueled by smart algorithms that feed off of the vast quantities of data we feed to them to ensure we get personalized service. Our supermarkets know all about our shopping habits and ensure we get personalized deals, retailers from Amazon to Netflix use our behavior to give us personal recommendations, and of course search engines and social networks use data to give us personal news and information.
One of the last industries to embrace this drive towards personalization is ironically the personal finance industry. Despite holding vast quantities of data on our expenditure, our income, our debt and saving levels and so on, the industry remains largely a mass market one that gives us much the same products and advice as everyone else.
Making finance personal
One company that’s looking to change all of that is London based startup Lifescale Limited. The company, which was born out of Morgan Stanley, aims to make it easier for households to undertake a financial risk-assessment. Users can easily perform a range of scenario planning exercises that highlight some of the risks involved in their current financial planning.
The process is relatively straightforward, with users inputting a range of financial metrics, such as income, expenditure, savings and investments, and then whatever goals they may have, such as planning for retirement or supporting children through university. The application then crunches the numbers and comes up with numerous different scenarios to give the user a probability of their goals being achieved given their current circumstances. The user can then tweak a number of the inputs to try and order their finances in such a way as to give their desired future a better chance of occurring.
“The way most financial products are sold to consumers today is, quite simply, crude”, claims Vinay Jayaram, one of Lifescale Limited’s co-founders. “Our ‘Envizage’ analytic platform lets consumers see their future in a visual, intuitive and probabilistic way. Consumers can use it to make wiser, more informed decisions without needing to understand finance. Financial services companies no longer have to push generic, unsuitable products to the consumer. This technology is designed to help consumers plan their finances around their lives, not build their lives around their financial products. We believe it aligns the financial services industry with its customers and their desired future outcomes. And that is incredibly powerful, even at the margin.”
It’s the kind of innovation that has been long-overdue in finance, especially as regulators increasingly demand greater data accessibility and transparency, with services such as Quovo early exponents of just that.
Despite this framework however, the industry remains notoriously old fashioned, and whilst Amazon, Netflix et al can increasingly make informed and proactive recommendations for us, our banks still remain largely passive observers in our financial lives, with the only input coming via human financial advisors rather than the algorithms that power the web-based services we so enjoy.
Whilst Lifescale Limited are an interesting glimpse into such a future unfolding, the company are as yet at a very early stage in their own journey, with their first commercial release due in the 4th quarter of 2017. As such, personalized finance remains something that we will have to do without for a little while yet, but I remain hopeful that it’s a future we won’t have to wait much longer to experience.