Is the much-maligned PFM (Personal Financial Management) space about to see a resurgence?
A flurry of economic and socio-economic factors have created a renewed interest in everything to do with budgeting. Enter Qapital.
“We think of ourselves as a way to plan and allocate your paycheck,”
Qapital CEO
As the need to save money – at all costs – increases, so to does the potential of the PFM market leaders and adjacent products.
Qapital Business Model
How does Qapital Make Money?
The business model is multi-pronged.
Subscription Revenue
Consumers subscribe to the app on a monthly basis; the price points are $3, $6, and $12 per month.
Interchange Fees (Payments)
The Qapital Checking account (debit card) is optional.
Those who do use the Qapital Debit Card are charged a typical debit interchange fee. Debit interchange fees equate to $0.23 per transaction in the U.S. The debit card is issued by Lincoln Savings Bank.
Thus, if users are saving and spending with their Qapital card, they will have a relatively high LTV in the Fintech market given that they also charge a subscription fee.
Dual Digital Banking Model+
The reason for the dual model is based on alignment of incentives according to the founder:
“[The subscription model] helps us reduce our interchange revenue by 30%. We’re working against ourselves, but what we’re really trying to do is help the customer.”
Bank Automation News
As of mid 2022, Qapital had more than 2 million users. If you assume something in the order of $6 average x 2 million from Subscription revenue (= $12 million monthly) + Interchange Revenue, means that it is likely that Qapital had a run rate of $100+ Million at that time.
The “+” refers to the fact that given Qapital Invest is a robo-investment platform, the company also has an AUM (Assets Under Management); however, it is unknown how much AUM the company has and it appears that the robo fee is part of the monthly plan.
Qapital Value Proposition
The value proposition is very clear; the average user who signs-up for a monthly subscription will “save on average over $4,300 per year.“
It achieves this in a few ways:
- Payday Divvy (apportions money at payday to savings)
- Expense tracking and budgeting
- Robo-investing (automated investment management )
They offer Debt Wrangler to help users with student loan debt in partnership with Spinwheel.
There are other products such as Dream Team, Cashback Hacks, and other ways to help save money.
Qapital Business Model Canvas
The Qapital Customer Experience (CX)
Qapital rates highly across multiple different review platforms, including a 4.8 Star rating on iOS and a 4.4 Star rating on Android.
Since the company’s products can be used for the purposes of investing via their Investment product, there are multiple blogs looking at the pros and cons of Qapital vs. other alternatives on the market.
A recent review has indexed many of those complaints, within the context of a solid customer experience overall:
In the event of a complaint or problem, the company relies on email or in-app support. This may cause some pause for some users, as dealing with problems related to banking can be very frustrating.
No phone support — Customer service is limited to the Help Center and email or in-app contact. There is no phone support.
Money Under 30
Nevertheless, across both the blogosphere and financial media, Qapital is consistently rated one of the top ‘money saving apps’ in 2023.
The app is often applauded for its visual goals-based approach. You can attach photos to your goals so that the portal serves as a digital vision board for your money.
Bankrate
The PFM Market Outlook
The problem-to-be-solved for PFM (Personal Financial Management) in the modern era deals with people’s ability to withstand various financial shocks. According to recent research:
A Bankrate survey showed that only 24% of adults say they have no money saved up for an emergency. Forty-eight percent (48%) of people surveyed however do have savings accounts that could cover 3-6 months of expenses if an emergency came up.
The College Investor
The main thrust here is that a 3 – 6 month buffer is quite variable for the 48% depending on:
- what their monthly expenses are
- what the monthly earnings are
- whether they have other assets they could liquidate
- the outlook in the job market relative to their profession
In that context, the additional $400 – $500 per month that they could save equates to potentially another month or month(s) of ‘shock absorption’ each year, especially for families or couple with more than one income.
Many remember Mint.com – who was subsequently acquired by Intuit – fondly when they burst onto the scenes in the mid 2000s with their budgeting app.
Since that time, PFM apps have struggled to gain much traction. The emergence of Qapital as a growing and relatively popular PFM app signals that the market for “budgeting apps” may be heating up.
Naturally, the question of competition emerges, as not only are there other native PFM apps on the market, but there are Digital Banks that are building those capabilities into their core functionality, mainstream banks that are increasingly looking to provide budgeting tools, and of course ‘financial coaches’ who will coach customers on how to best budget their money.
Google ‘ways to save money’ and numerous blogs from various sources will emerge. At the bottom of the search ‘money saving apps’ shows Qapital, Chime, Mint, and others.
It’s not crystal clear how a user would choose to come to one budgeting app vs. another, but it seems most likely to be related to:
- word-of-mouth and referrals
- personal finance and investment blogs (Mint’s early-stage growth strategy was via their blog)
They acquired users through their blog by getting these users email addresses, and in exchange they gave these users access to the Beta product. But because they were oversubscribed, they created an ‘I Want Mint’ that users put on their social media or blog, and those users jumped the queue to become VIP
Mint.com Business Model Canvas
One significant unknown variable stems from the ‘coaches’ market, which has grown increasingly popular and relevant in the last couple years.
PFM Proxy – Financial Coaching
A quick look at Google Trends since the beginning of 2021 shows that interest in a ‘financial coach’ remains high.
There will naturally be a difference between individual financial coaches and those firms who offer deeper levels of specialization. In the U.S. market, there are 2,200 financial coaching firms.
Financial coaches are generally considered advisors who can help their clients with money management, debt-reduction strategies, and other ways to improve financial fitness.
The upside for those who are being coached is the hands-on, relational approach. The downside is that it will obviously be more expensive than an app like Qapital.
As the market evolves, financial coaches emerge as an interesting segment for those in the PFM space to gain access to a potential Partner channel and open up a new customer channel.
What is ‘Financial Fitness?’
This all leads to the ultimate question, ‘what is financial fitness?’
It seems to related to the ‘piece of mind’ an individual, couple, or family have relative to their future financial goals. It doesn’t appear like there is one-size-fits-all model related to the definition of financial fitness.
When looking at the Future of Banking, it is clear that ‘budgeting tools’ are a key piece of the mix, but how do we scale up the personalization on an individual level?
AI Personalization for Tailored Financial Fitness?
Ultimately, the PFM market seems to be one-such market where AI (Artificial Intelligence) can bring a significant amount of upside to customers.
With all the multitude of variables related to an individuals financial health, the complexity requires customization. That’s ones argument for AI-based financial planning to see a big boost in the years ahead.
Simultaneously, the hands-on, relationship-based approach will remain important for many.
It is entirely possible the best ways to radically improve financial fitness hybridize the best of technology with the top experts in those fields, much like personal training at the gym itself.
Who will end up ‘cracking the code’ in the PFM market?
There are multiple players who are limited to, but not including:
- Mainstream Banks who continue to dominate financial services globally
- Up-and-coming Challenger Banks who are ‘data-driven’ and already have these capabilities built into their core products
- Native PFM Apps who understand the behavioral psychology of ‘saving money’ as well as anyone
- Budget Coaches who have the face-to-face relationship element (particularly important in older generations who are the majority of savers) and can influence certain customer segments
These players will be competing in a market that is difficult to both size and predict. Nevertheless, it appears likely that the PFM market itself will heat-up again in the next 12 – 18 months and those who have the best combined offering will be able to seize the opportunity.
In the interim, we have seen in this post how Qapital has built a robust business model over time in a space that is traditionally seen as a tough market to crack into and become profitable in.