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The game is changing for personal financial management tools. The tools are getting better, the prices are coming down, and they are beginning to offer the consumer real value.

Digital Insight’s solutions are looking better. What was once a stale user interface seems to have been positively impacted by the Intuit acquisition. The timing for this new launch is key. With so many free tools in development today, it was important for DI to remain competitive.

One of the most compelling free solutions is Mint.com. The design is great and it actually works. The experience is stellar and the business plan makes sense. The company is taking off, a recent article explained that Mint had the online banking penetration rate of a bank with about $17 billion in assets within two weeks of launch.

Mint is one of the few Web 2.0 PFMs that offers real value to the consumer. Their software will search through bank transactions and suggest more cost effective ways to accomplish your financial goals. The two examples the Mint CEO cited at Finovate 2007 were cable television and interest bearing checking accounts.

Ever wonder how much you can earn on an annual basis by being invested in the best savings account? Mint knows and ING appears to be the biggest beneficiary of this analysis. The same is true for bundling your phone, internet, and cable TV services through Time Warner.

The future for these tools is bright. It will be interesting to see this disintermediation between the consumer and their bank. In most ways the interface offered by these tools are superior to the typical online banking interfaces. Innovative institutions should seek to leverage these channels. The largest players will likely offer very similar experiences out of competitive necessity. Smaller firms should seek to private label PFMs to offer their customers a compelling reason to not use third party PFMs that will likely seek to disintermediate them.

Adoption habits vary greatly based on demographics and we continue to see dramatic change in the ways that these groups are approaching online banking. According to Forrester, 76% of households will be banking online by 2011. Online bankers are more lucrative customers for financial services firms as they bring nearly double the salaries and investable assets as their offline banking peers.

At the 5th Annual Financial Services Marketing Symposium the team from Javelin Research and Strategy presented an interesting finding. Javelin’s Jean Garascia identified that there is an inverse reaction to a security breach between high and low income groups.

The low income demographic will jettison new technologies like mobile or online banking when a security breach takes place. For this group a security breach represents a more significant life impact in that a theft will be an extremely large inconvenience. As a result, low income users will assume that the breach occurred as a result of this new technology and simply discontinue using the channel. It is important for financial institutions to understand this trend and be prepared to engage in a dialog with these consumers about the actual driver of the breach. Fear of security still remains one of the top reasons for non adopters to avoid online banking.

The opposite reaction is true for the higher income group. In the event of a breach this group tends to increase high tech adoption. They actively seek out additional technologies to keep them in closer communication with their money. This is especially important for the roll out of mobile banking and SMS text alerts.

From a mobile banking perspective, risk adverse users still prefer a downloadable application in lieu of a web based mobile banking interface. Mobile internet users (MIUs) still remain the most likely to adopt mobile banking. As of today, mobile is still not a significant enough value for customers to switch financial institutions. Consumer Adoption for mobile banking remains a function of the perceived risk and Javelin goes on to say that zero-liability is the key to mobile banking adoption.

Education will continue to be a critical component of any high tech roll out strategy – this is even more important for the low income groups.

As one of the largest generations that the nation has ever seen starts to get out of college, we will start to witness a completely new type of adult. Over the next decade the Baby Boomers will retire in greater and greater numbers, Generation X will move into upper management, and Generation Y will take the playing field as the most technically advanced, most diversified, and most worldly workforce ever known. And with new jobs, come financial decisions…

Our research helps shed light on Gen Y’s financially literacy, how comfortable they are with credit cards, as well as their propensity to save and invest. While 90%+ of Gen Y has not yet had to shop for rates on a car loan, 11% of them had credit cards in high school. With their amazing adoption of the internet (97% Gen Y college students own a computer) they will be fast and efficient at shopping for rates and service levels on products such as savings accounts. Much research shows that they are more likely to live with their parents or with a parent subsidized lifestyle in their early adulthood than any generation to date. In the US economy today where average income has not grown as quickly as the cost of living in many regions, it is likely that as 2010 rolls around and older Gen Y’ers begin to look at first mortgages, they will need a little help from both mom and dad (75% of Gen Y has a working mom).

This information rich group of people will learn how to compare and contrast financial scenarios in ways yet undefined. While baby boomers needed to visit or call the mortgage broker to get the latest rates on home loans and to even calculate what their monthly mortgage would be on a first home, Gen Y takes a different approach. Gen Y, whom may not have the ability to spell m-o-r-t-g-a-g-e (they’ve had ‘spell check’ since they first learned to write type),researches properties, searches home loan rates on numerous institutions large and small, calculates mortgage payments with mortgage-focused-calculators, monitors their credit report monthly, and even procures their own mortgage all online – possibly without ever talking to a person.

While their first real world exercise in budgeting may have been focused around limiting their cell phone usage rather than stretching their allowance, Gen Y has access to more financial research than they can possibly know what to do with. Historical stock quotes, debt pay-off modeling, and detailed retirement plans will take minutes to find (if not seconds) for Gen Y. They will manage their finances through web sites, cell phones, and ATMs possibly without ever coming any closer than a chat-session to a real financial advisor. It is important for financial services firms to understand that marketing to this demographic will require a keen understanding of their preferences in communications.

I just got back from Finovate 2007 in New York City where I had a chance to see some very efficient presentations. Twenty companies were each given 7 minutes to present their offerings – and PowerPoint was not allowed. For the most part the solutions fell into two types of applications—Web based PFMs and Mobile Banking Platforms.

Clearly, the next few years will be marked by developments in mobile banking within financial services firms. Tomorrow’s user who logs in from a home computer will be as rare as today’s user who checks his balance at the local branch. Mobile banking will replace most of what users are doing online today.

And the competition is thick in this space. Finovate showcased several companies in this area including:.

1. Monetise
2. Clairmail
3. mShift
4. mFoundry
5. Firethorn
6. Yodlee

Each platform is slightly different, the user experience varying in complexity. mShift claims 80-90% market share. They seem to have the most credit unions, clients in Extractable’s neck of the woods.

Yodlee positions itself as the personal finance company to replace Quicken or MS Money. With 3 million existing customers they are adding a new customer every 20 seconds.

Monetise, a joint venture from Metavante, offered a neat solution that included mobile wallet functionality. They walked through a scenario where the user could purchase newspapers with the tool. Their client application will come pre-installed from some carriers shortly.

ClairMail offers the most ‘high-touch’ platform for communicating with customers. They walked through fourteen use cases that addressed flows like transaction verification in which banks can reach out to the consumer mobile device. They stressed that we should look at mobile as a platform – not a channel.

There are a large number of players in the mobile banking space. The solutions they offer are by no mean homogenous. Each player appears to approach technology and customer delivery channels in different ways.

The bottom line is that much as online banking is required in today’s financial services delivery mix, mobile banking will be a required delivery channel tomorrow. Banks and Credit Unions should review available solutions from an operational and customer focused perspective before developing a long term mobile strategy that will meet customer needs. It is important to note that switching costs will be higher down the road given mobile platform selection so we would recommend doing an exhaustive analysis of how mobile banking will fit into the delivery mix from a longer term perspective.