These fintechs automate the budgeting process

These fintechs automate the budgeting process

Although not a bank in the traditional sense, Oportun – formerly known as Digit – offers a new way for consumers to do their banking, integrating artificial intelligence (AI) technology. Customers link their bills and credit cards, and Oportun’s algorithms determine how much to allocate to each spending category when a deposit is made.

These types of fintech accounts are part of a new trend in the financial industry where banking companies use advanced technology to make day-to-day money decisions on behalf of their customers. That includes setting aside money to pay bills, track progress on savings goals, and pay off debt.

The fintechs that offer solutions to consumers’ budget challenges fill a gap that traditional banks have yet to address. But while the fintech industry poses a challenge to traditional banking, there are some areas where it falls short of consumer needs.

What consumers want from banking services

The reality of traditional banking is that it doesn’t always deliver everything consumers are looking for. A study by Galileo found that of the 65 percent of consumers who primarily use a traditional bank account, only about two-thirds (66 percent) are satisfied with their bank.

Another study by FICO found that 70 percent of consumers say they are likely to open an account with another bank provider if that provider can meet their unmet needs. But what exactly are these needs?

One factor to consider is where consumers are struggling financially. The FICO study reported that 68 percent of consumers are stressed about money each month, and 53 percent say they are not on track to meet their financial needs and goals. Alongside the economic uncertainty, consumers are struggling to save: Bankrate’s latest emergency savings report found that only 43 percent of American adults would be able to pay for an unexpected emergency expense with their savings.

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In a tight economic environment, with fears of a looming recession, consumers need tools that can help them keep track of their spending and save more. It’s a tedious part of the economy that takes time and effort, and many consumers may simply not be able to squeeze it into their busy lives — or they lack the resources to budget effectively. That is where available, innovative technology can step in.

This is how automated budgeting works

Using AI and machine learning algorithms, fintech accounts can analyze customers’ data, such as their bills, direct deposits and spending patterns, and make day-to-day money decisions for them. The goal is to help consumers reach their financial goals without having to constantly worry about making costly financial decisions.

“As a consumer, you really want a master account that pushes your money in whatever direction it needs to go,” says Alex Johnson, founder of Fintech Takes, a fintech newsletter.

The concept is often compared to self-driving: You tell the banking app your destination, and it figures out how to reach your destination, making adjustments along the way as long as it has your direct deposit.

Oportun was one of the first fintechs to offer these advanced tools. You can enter the details of your bills and credit cards, and the service will decide how much to take out of your paycheck or other deposits, so you can comfortably make things like car payments and monthly rent on time. When it withdraws money allocated for bills, the money is moved to a separate Bills account. The money managed by Oportun is held by banking partner Pathward so it remains protected by FDIC insurance.

Meanwhile, Mint is another service that comes with automated budgeting features, allowing customers to create unlimited spending categories. You can set spending limits for each of these categories, and the service will track how much you’ve spent in each category for you. You will be notified before overspending and will even receive recommendations on how to cut spending.

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Unlike Oportun, Mint does not act as an alternative to a bank account. You still need a separate bank account, but you can connect all your accounts to Mint, which then tracks your cash flows and expenses.

What are the costs?

There is a price for having these decisions made on your behalf, and it is important to weigh this cost against the free options available to you.

Oportun, for example, costs $5 a month once the free trial ends. It includes that cost along with your other expenses as something it automatically helps you pay. The $5 monthly fee is slightly lower than the average fee on a no-interest checking account, which is $5.44, according to Bankrate’s latest checking account survey.

Still, if you want to avoid fees altogether, there are plenty of free checking accounts. Nearly half (46 percent) of interest-free checking accounts charge no monthly fee, and many more offer relatively easy ways to waive the fee.

But consumers are not necessarily deterred by a fee if it gives them access to services they need. FICO’s study found that 45 percent of respondents were willing to pay a monthly fee for products and services that helped them with unmet needs. The top features they were willing to pay for include:

If it helps you save more in the long run, paying for an account with automated budgeting might be worth it. But you may not even need to pay for automated budgeting. With Mint, you can use the basic version of the service for free. While it offers Mint Premium for $4.99 a month – giving you access to advanced features and ad removal – the free version includes the budgeting tool.

The shortcomings of fintech banking

Not everyone agrees that consumers will be able to easily put the economy on autopilot. For a smart bank account to succeed, it needs to inspire consumers to connect their financial data to lesser-known brand names and figure out how to get them to use their apps long enough to effect a behavioral change. It also requires disrupting ancient banking business models, overcoming privacy concerns and not failing an algorithm.

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Then there is the issue of digital-only service. While advanced technology helps consumers in many aspects of their financial lives, online-only experiences lack the personalized customer service and face-to-face interactions that many consumers value.

A Frost Bank study found that consumers are almost twice as likely to prefer personal services when planning for major financial events. Furthermore, JD Power’s 2023 US Retail Banking Satisfaction Study reports that 38 percent of bank customers consider bank branches “essential” – an element that fintechs will struggle to make up for unless they partner with banks that offer personal services.

The bottom line

As they develop their products and try to woo new customers, these fintech disruptors will face obstacles, including inertia. The average American adult has used the same primary checking account for about 14-17 years, according to a Bankrate survey. Today, all kinds of competitors are fighting to replace the traditional bank account with something better too.

But these fintechs highlight the potential for technology to address voids in traditional banking that are detrimental to consumers’ financial well-being. They not only offer an alternative to traditional banking, but also offer completely new ways of managing your finances.

Even if you’re not ready to ditch your bank account entirely, it might be worth considering doing at least some of your banking with a fintech company like Oportun or Mint and getting access to advanced budgeting features. You may also want to look into other budgeting apps that do some of the work of creating a budget for you. Just be sure to evaluate the fees for these services and decide if it’s a cost you’re willing to take on.

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