Cash management as a (banking) service

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In recent years, we have been overwhelmed with PFM tools and account aggregators, which has given us an overview of our financial situationsuch as our spending habits, our sources of income or our forecasts of expected future cash flows.
While these tools are certainly useful, they still require some effort on the part of the user and even more self-control on the part of the user to make real tangible improvements in their financial flows (such as reducing certain budget items or saving more money).
The reason is that all these tools are mainly reporting and analysis tools giving post-factum information, but doesn’t help you manage your money proactively. Personally, I consider this lack of proactive tools to manage your day-to-day cash flow as one of the biggest shortcomings in the financial industry today.

The type of cash or cash management tool that can really help you proactively obviously depends on the stage of your life, e.g.

  • As minor or student, you are taking your first steps in money management, i.e. learning how to work with money, but usually all the spending you do is on fun things. While managing money at this point in your life is still relatively easy, some shortcomings in today’s banking apps do exist. For example, think of high school students who receive an allowance from their parents for food, books, and clothing, but spend it all on parties and pubs.
    It is necessary for parents to control spending, without micro-managing their children’s finances. Whereas today parents can only verify something after the purchase has been made, it would be much more efficient if parents could proactively set certain rules for how their children use the money, for example that it can only be used in certain stores/areas, a maximum amount per day/month, a maximum percentage of the total account balance used per day/month…​ This brings us to the notion of rules based moneywhich I have already presented in a previous blog (cfr. https://bankloch.blogspot.com/2021/01/can-digitalization-of-money-provide.html).
    In addition, it is necessary to assign goals and deadlines to (parts of your) saved money. Collecting this information allows young people to make saving more tangible and fun, but also allows the bank to (propose to) park some of the money in longer-term (preferably risk-averse) investments ), which earn more.

  • Once you start working and rent or buy your own home, cash management becomes much more complex, as the number of expenses (many of which are recurring) increases drastically. This often leads to short, medium and long term imbalances in your finances:

    • Short-term imbalances are usually caused by your paycheck not being deposited until the end of the month, which makes the last 1-2 weeks of the month more difficult financially than the beginning of the month.

    • Mid-term imbalances occur because certain months of the year are usually much more expensive than others, as large bills such as taxes and insurance or utility bills are often all rolled into the same month.

    • The long-term imbalances come from the fact that wages still tend to increase with seniority, while expensive periods of your life (such as when your children go to daycare or high school or when you build or renovate your house) tend to be more spread out over your life.

    • Balancing these imbalances is currently a manual effort made daily by almost all adults. Tools to level out these imbalances would therefore be more than welcome. This should be compensated by products that bring investment and loan products closer together, such as Lombard loans (allowing you to lend quickly and cheaply on your long-term investments), salary advances (which allow you to lend on your future salary) or a product like Capilever’s FLEX product. “less liquid assets” or “future streams of income”.

  • The new retirees have a new cash flow problem. Often they receive a large lump sum from their retirement savings or group insurance, but have to manage the life of that money themselves. It can be too complex, for example if you take part of the capital every month, it means that you have to define a maximum age, which is quite morbid to define. At the same time, you have to take into account inflation because a monthly amount of X EUR today is not the same as the same X EUR in 10 years. You could also live only on the interest and/or P&L generated on the capital, which avoids setting a maximum age, but this requires an often unrealistic capital and also requires taking inflation into account. Simple solutions exist, such as distribution investment funds or divestment plans, but they are quite basic. More advanced products could be considered, such as reverse life insurance, i.e. you pay a single lump sum, which depends on your calculated life expectancy and the premium you wish to receive on a monthly basis. Once this is paid, you receive a monthly amount until your death. In other words, the reverse of standard life insurance, i.e. instead of receiving a lump sum at death, you pay a lump sum at the start of your insurance contract and instead of paying premiums until you die, you actually receive premiums until you die. . This type of insurance product would give people the guarantee that they will receive a monthly amount (which could be adjusted for inflation) regardless of their age.

  • ultimately elderly people with health and potentially mental problems, might again need a solution to protect their spending habits. Today, the financial management of the elderly is often taken over by their children, but this is very intrusive. A better solution would be to also impose certain pro-active rules for spending money (rule-based money), so that the elderly can maintain their autonomy, while maintaining a certain level of financial security (i.e. say by protecting them from unwanted expenses).

These types of banking products would be – in my humble opinion – really innovative, because they take the burden off people of actively managing their day-to-day finances (manage their cash) but instead they allow to outsource your finances to a bank i.e. just outsource depositing money to a bank for also outsource the day-to-day decision-making of cash management.

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