As online financial management technology becomes more popular, the business model for delivering it is being revamped.
Several companies have developed applications to analyze aggregated account information, and some have taken those services straight to consumers through free, advertising-supported Web sites. Now there are signs that some players are rethinking this business model in favor of the traditional approach of selling software directly to banks.
Geezeo Inc., which began offering its personal financial management software to banks last month, said last week that it expects 80% of its revenue this year to come from financial customers. And the company has dropped its consumer account recommendation service, which it said was incompatible with its new mission.
Mint Software Inc. is changing the way it delivers its own recommendation service. In February Mint began offering the service to anyone instead of only enrolled users, and last week it said it plans to revise its software to create a version that banks could use to tout their products to customers.
Analysts said the changes show that there are limits to the advertising-supported business model, and though consumers are interested in online financial management tools, many people prefer to receive them directly from their banks. However, in becoming technology vendors to banks, the companies will face increased competition from other vendors that offer similar products, such as Yodlee Inc. and Intuit Inc.
Geezeo's earlier model was offering online financial management tools directly to consumers, coupled with a service that examined users' banking activities and recommended products from a variety of banks.
Shawn Ward, a Geezeo co-founder, said that 90% of its users "have said they really value and want their Geezeo budget and cash-flow features, but if they had their druthers they'd rather get it within their own financial institution than" from another provider. "They come here because their institutions don't offer this."
The Framingham, Mass., company receives revenue from advertisers on its Web site, and until it shuttered the service in January, the recommendation service brought in revenue; banks paid it referral fees when people opened accounts based on its advice.
Ward said Geezeo had to eliminate this service because advising people to open new accounts at various banks conflicts with its new business model, which emphasizes selling software designed to boost bank' customer retention.
Ward said Geezeo rebuffed some earlier inquiries from banks that wanted to offer its financial management technology.
"We're talking now to at least a dozen community banks, credit unions and larger banks," he said, though Geezeo has not yet landed any bank customers. "In the past year there have been 10 others that came, checking in, asked if we do this. We weren't ready; we shut them out."
Geezeo is not the only one selling financial management software that banks can offer to customers. It is now competing with Yodlee, Intuit, and Jwaala, among others; Wells Fargo & Co. offers a similar product it developed in-house. (Ward said Geezeo has already heard from some Intuit bank customers that are considering using his company's software.)
George Tubin, a senior research director at TowerGroup Inc., an independent research unit of MasterCard Inc., said Mint, Geezeo, and other nonbank providers of financial management tools may be more successful offering their technology to banks instead of consumers.
"The capabilities they developed are really state-of-the-art," Tubin said, but on their own "they're relegated to an advertising model or a referral model, which really only has so much legs."
Even though the financial crisis may slow some banks' investment in the PFM space, he said, "this is clearly the direction we're going to see financial institutions going."
Mint, which also offers both financial management and recommendation services, is taking a different approach: it plans to offer its recommendation service to banks, but not its spending tracking tools.
Aaron Patzer, Mint's founder and chief executive, said many of the banks that advertise with the San Francisco company "have complimented us on the way to display cards and filter through the different options … [issuers] have really liked that, and so one of the things that we may do in the future is essentially license the technology to anybody who would like it" so banks "can promote their own products" on their own Web sites.
Last month Mint redesigned its Ways to Save recommendation service, making it easier to use and granting access to people without a Mint account. It had been available only to registered users, and expanding the pool increased revenue significantly, Patzer said. Like Geezeo, Mint receives a referral fee from banks when people open accounts on its advice. Patzer said the revenue generated by the service has increased by 40% since then; he attributes about half the lift to the streamlined format and half to increased use that resulted from opening it up to anyone.
Patzer said banks have also shown interest in this technology, though they will likely want a version that pitches only their own products rather than one that could steer people to a rival.
Advertising was bringing in enough revenue that Mint was "on the path to break even," Patzer said, but he agreed the model has its limits. "I would say that one of the issues that we're working on right now is we tend to make most of our revenue in the first month" after a customer begins to use Mint's services, he said, when a customer is most open to suggestions from the recommendation service. "You're only going to switch your credit card so often."
Peter Glyman, Geezeo's other founder, said it could have succeeded serving only consumers and relying on ads and referrals for revenue, but selling software to banks offers faster growth.
The consumer service is "a very viable business," Glyman said, but "it takes a lot of money and a lot of marketing resources to get the scale you need to" turn "a free product into a profitable company based on lead-gen and advertising, and the advertising market right now is brutal."
By contrast, the business model for the white-label product presents fewer hurdles, he said. "With the banks coming to us at such an aggressive pace, it just made a lot more sense."
Marc Hedlund, a co-founder and the CEO of Wesabe Inc., another PFM provider, said his company has long been averse to advertising — he said enticing people to buy new products clashes with Wesabe's goal of helping people save — but there are now strong business reasons to look elsewhere for revenue.
"The market for those ads has collapsed. The amount that people are willing to pay for a referral to a new bank customer right now is lower. I mean, American Express right now is paying $300 to get rid of customers," he said, referring to a new program where Amex is offering some customers $300 debit cards to close their accounts and pay down their balances.
Ron Shevlin, a senior analyst at the research company Aite Group LLC, said selling to banks could offer a faster path to success.
"They don't have to move in that direction, to the banks," he said, but to rely on a consumer-direct model "you have to be very, very dedicated and bring deep pockets of funding to truly build that direct-to-consumer demand."
Eventually financial management tools will become essential for financial companies, he said.
"Banks have to move more to a direction of helping consumers, helping the customer base manage their financial lives and not just selling them products," he said.
However, there is no guarantee the technology will come from Mint, Geezeo, or another company, Shevlin said.
"These may very well be the products that take them there, but … it could ultimately come from core banking vendors, from CRM vendors. It could come from the vendors that are already incumbent."
