Innovation idea: in a challenging environment of low interest rates, how to reinvent the way people save and invest their money?

Note: this article was written with Pia-Maria. Many thanks for her support. 

In a low interest rate environment, clients need more than ever some help to optimize their short to long term saving strategy. An opportunity for retail banking is to develop a digital money manager service to support its clients, increase its margins on investment products, gain market shares on investment management and get to know better its clients.

Most European people do not have a sound investment strategy and the current low interest rate environment is worsening the situation.

In a more and more complex environment, saving money to reach long-term investment goals is a key necessity. Indeed, people need more than ever to build a personal safety net to buy their house, finance growing education costs for their children, prepare their retirement or simply keep cash aside to cover non-anticipated events (sickness, unemployment…). Moreover saving efforts are too limited. Only 71% of European people put money aside[1] and their investment strategies are too conservative:

  1. The ability to be disciplined and build an investment strategy is not an easy task for most Europeans. Most people barely have enough money to cover emergencies. Only 31% of them do not save more than the equivalent of 3 to 6 months of revenues[2].
  2. European investors are also risk-averse, with around 70%[3] of their assets invested in cash. This habit is reinforced in a low interest rate environment by low-priced credit. In such a context, clients reduce their saving efforts to invest in housing and durable goods.
  3. The preference for cash is also threatening the profitability of banks with cash deposit costing money to financial institutions due to negative rates (€4 annually on each €1,000 that lenders deposit with the European Central Bank). And it does not take into account the loss of commissions from financial products not bought by clients.

Saving money is not a natural behavior, clients need to be advised

Let’s face it, people are keen to spend money and ask for a credit to their bank. But when it comes to saving money and defining an investment strategy, most of them are lost. Moreover, people are not used to buying investment products. They have to be actively promoted and sold by financial institutions.

Robo-advisors such as Yomoni in France or Feelcapital in Spain adapt investment strategies to clients’ profile and help them manage their punctual investments more efficiently at a lower cost. But they fail to generate recurring inflows because there is no strong product push. As a consequence, they do not solve clients’ main issue: managing proactively and seamlessly their saving efforts based on their revenues and life projects.

Building a personal money manager offer

In a low interest rate environment, clients need more than ever a proactive and even predictive money manager assisting them to save money. This service would use analytics from all the client’s bank accounts  (in any banks) to funnel their saving efforts to a large range of short to long term investment products (bank accounts, saving accounts, life-insurances, funds…). This service should be tailored to client’s objectives and should adapt saving strategies to specific events in a snap: increase in recurring revenues, unexpected expenses, unemployment periods, birth of a child…

Meet the Personal Investment Advisor (P.I.A)

Saving and investing money should become as simple as choosing a movie thanks to Netflix’s algorithm. With 70% of clients[4] now ready to delegate money management to robots, retail banking has the opportunity to develop P.I.A.

The goal of P.I.A is not to focus on one-shot investments as Robo-advisors do. Its purpose is to build an ongoing and proactive service helping clients to build their saving strategy step by step. And as of today, there is no service offering such a complete, seamless and integrated user experience. But what are the key components of the client’s journey?


Illustration – P.I.A personal money manager, simplified client journey

  1. After connecting to P.I.A, the client completes his personal and investment profile to define his projects, needs and risk tolerance. It should be reviewed on a yearly basis thanks to an interactive test replacing existing compliance questionnaires.
  2. P.I.A’s algorithm screens the clients’ accounts whether they are held by the bank or not. Thanks to the upcoming PSD2[5] regulation planned in January 2018, it will be possible to screen all the clients’ accounts and get a clear picture of his assets, revenues and estimate his saving capabilities based on his investment goals. Some banks such as Société Générale in France have already their API up and running. The service defines the optimal stream of money funneled to bank accounts, saving accounts or investment products such as funds and triggers money wires from one account to another.
  3. P.I.A’s algorithm runs 24/7, monitors clients’ assets and suggests adaptations depending on their personal situation or market conditions. For instance, if a client receives a bonus the algorithm automatically suggests investing a part of it. Or, if the client loses his job the saving effort will be suspended. Another example: the algorithm will suggest transferring money from a saving account to avoid a costly overdrawn.
  4. Each adaptation of the saving plan suggested by P.I.A is sent to the client via mail, SMS, Messenger, WhatsApp… The message communicates the adaptation of the saving plan in a simple language. It describes the long-term impact and allows the client to directly validate or not the operation. Simple, efficient and smooth for both clients and its bank.
  5. A key feature of P.I.A is to suggest the client to link accounts held in various banks allowing him to have a consolidated view of all his assets. The goal here is not just to build a glossy report as services such as Mint do. It is also a way to remove a major barrier to use the service knowing that clients will be highly reluctant to close and transfer their other accounts just to use the service.


A best in class user experience generating fresh inflows in higher margins products

For clients the upside to use P.I.A is clear: this is a simple and convenient mean to structure their saving plan and build a consistent investment strategy. P.I.A is a value-added service and that is why it should remain free of charge to speed up clients’ acquisition. Indeed, the goal is to incentivize clients to use the service and promote it to their friends and family.

Developing a best in class service has a cost but would trigger major commercial opportunities:

  • Funnel current clients’ assets from low margins saving accounts to higher margins products such as funds (around 60 bps of margins on an Active Equity fund for a distributor).
  • Attract new clients and open new markets at a lower cost. P.I.A could be easily deployed in any country to gain market shares against local players thanks to a high quality service. In addition, focusing on investment services does not cost much in terms of capital charges, a key advantage in a post Basel 3 world.
  • Get valuable data from clients feeding the bank’s CRM tool. Indeed, data is key in the Digital revolution. Thanks to the data retrieved through P.I.A, the bank could reinforce the knowledge of its clients’ habits to propose tailored banking and insurance offers.

P.I.A is not just another Money Manager or Roboadvisor tool addressing a small part of the Money Management process (investment strategy setup, investment planning, investment management, report). This is an all-inclusive offer, managing the full Money Management process from the definition of clients’ objectives to the investment.

Illustration: P.I.A’s use case

Vincent (client at zBNK) became a dad a couple of months ago. P.I.A detected a new family allowance on Vincent’s account and suggests a saving plan for the new born child.



[1] ING International Survey Savings January 2017

[2] ING International Survey Savings January 2017

[3] Blackrock Pulse survey 2016

[4] Accenture, Global Distribution & Marketing Consumer study January 2017

[5] PSD: Payment Services Directive