Paypal needs to leave 1998 and move on to 2015.

I rarely use PayPal. The only times I use PayPal is to buy from Internet merchants who I have never dealt with before. I never use their money movement feature. That being said, a couple of months ago I decided to add a new bank account to PayPal.

A typical way to setup a new bank account for ACH is utilizing the trial deposit method of account verification. With this method, the entity which likes to make the ACH linked setup, sends two micro trial deposits usually less than a dollar to the bank account and asks you to verify this amount. This process takes typically a day or two due to the underlying limitation of the ACH technology which uses batch files in this day and age to settle transactions.

Recently a newer way to verify bank information has been floating around – this is called Instant Verification where the entity (like Paypal) utilizes the online banking login information to confirm if you really are the owner of the account you are trying to link. I have used this method in a few places and 99% of the time, unless you are trying to link to one of the big banks, this never works. (In which case I fallback to the trial deposit method).

So when I set up a new funding bank account with PayPal using this new Instant Verification method, I was surprised to see it was able to connect to a small local credit union account. However I realized a few months later, instead of linking the checking account, PayPal ended up linking the savings account. (Disclaimer: I am not sure who screwed up here, PayPal or the aggregator they use or my credit union’s core system).

During holiday shopping season I used Paypal a little more than normal. This ended up deducting  from my savings account (which didn’t have much balance on the first place since this bank account is purely used for everyday spend).

At one point, the savings account over drafted and PayPal hit me with a $20 fee for the failed ACH transaction (even though I have a backup credit card setup within Paypal to fallback in the event of ACH failure.

Transaction from my bank on 12/23:

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Not wanting to deal with PayPal’s customer service, I decided to remove this bank account from PayPal and just leave it only with a credit card as funding source. When I try removing the bank account, I get an error message that “You have a pending transaction – you cannot remove this bank account”.

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I give PayPal a full 5 day window and try removing this account and I got the same error message again. To add insult to injury, I can’t seem to locate the $20 fee or the Pending transaction within PayPal Account Activity Section.

Here is PayPal’s account history where you can’t see the $20 fee or a Pending transaction:

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I even tried the Ugly Sister version (Classic Site) of PayPal to see if this Pending Transaction and hidden fee are visible – no luck.

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I can’t believe PayPal, a massive platform with so many customers would suck so bad on User Experience. I wrote to PayPal Customer Service, lets see what that response would look like 🙂

Update 1 on Jan 1, 2015.

PayPal sent me a generic email about how to add and remove bank accounts when I specifically asked them to remove a bank account. Auto Responders are not cool – especially when you deal with customer’s money.

I tried moving some money from the PayPal account to my bank account. It seems like the transaction went through but this is the confirmation screen I got after the transaction. I got an error message to check my card details followed by a big green check mark possibly indicating that the money transfer was initiated. What does this even mean?


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To facilitate this move, I had to increase my monthly transfer limit. PayPal cleverly suggests that we add another credit or debit card to do this. I added a new card to increase my limit. PayPal charged me an amount of $1.95 to validate if the card really belongs to me. In the transaction memo they embed a 4 digit code which needs to be used to validate that the credit card belongs to me.

Once I finished adding the card, I got a realtime mobile SMS alert from my FI and I added the 4 digit code to confirm that the card was mine. After that I was able to move the money from PayPal to the bank account. However, when I viewed the account register again, instead of seeing a credit and a debit for the $1.95 which PayPal posted, I see two credits to my account. SMH.

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Does this company even do any Quality Assurance Testing on the code they push to production?!?!

PFM – A mystical rainbow-colored magic Unicorn?

Personal Financial Management (PFM) is probably the most misunderstood acronym in Fintech (next to NFC).  A fun exercise is to ask what PFM means to a banker, an analyst or a Fintech consultant. You will be surprised at the variety of answers you get from them. After following PFM for the last three years, my opinion is this – PFM is a mystical rainbow-colored magic Unicorn which is out there – but no one has seen it yet. 🙂

Now lets flip the question and ask the same to Joe or Jane,  a consumer on the street. There is a good chance that you would get a blank stare at the mention of the acronym.  Since we are not totally clear what PFM means, let us ask some questions to clarify this:

  1. Do you budget your finances? If yes, do you use tools like Quicken?
  2. Do you use an online aggregation services like to see all your finances in one place?
  3. Do you monitor your income and categorize your expenses to track spend?
  4. Do you set financial goals and follow through it with a help of a tool?
  5. Do you have any tool/service which helps you in planning to make the right financial decision when it comes to life events? (Lets not consider your CPA here).

If the answer from Joe or Jane is yes, then they have been exposed to a Personal Financial Management(PFM) tool or service is some shape or form. The real question now is how valuable do they find this?  Is there one tool or solution which manages to answer all of the above questions without making any compromises?

Problems with existing PFM solutions:

PFM industry today comes in two flavors – direct to consumer and white labeled solutions offered by Financial Institutions.  Some  players in the direct to consumer market are the likes of Quicken,, Personal Capital etc.  The white labeled solutions players include Yodlee, Intuit (parent company of Quicken), MoneyDesktop, Meniga and Strands to name a few.  To my knowledge I have seen consumers more exposed to likes of Quicken and Mint since it gives them direct control of managing their financial lives .  The white label solutions do have a stigma that you are locking yourself with the FI which provides them. Some consumers question that approach and prefer not to go that route (What if I have to switch my bank? Do I have to set up all of my accounts again with a new bank?)

FIs would love to have their customers use the white labeled solution as this gives them a nice 360 degree view of the customers finances and what their wallet share is. Some of the FIs also use this to promote their products to these customers based on this aggregated view.

However, the big challenge in this approach is PFM has always been relegated to the role of a second class citizen within the online banking experience (A tab within online banking instead of being the primary landing page). In my opinion, this severely hurts adoption. Due to the nature of the way these white label solutions work , there is definitely some lag (at least a day) in getting the most current information populated within the PFM tab. I have always argued that this is a bad idea and PFM should “be” the online banking experience. Moven has taken this approach and integrated this from the get go on their banking user experience.

Apart from the fact that PFM gets a secondary tab, many FIs come short at providing good PFM integration into their mobile apps.  Jim Bruene from Net Banker writes that Mint is the only Pure PFM Player which provides basic PFM functionality addressing the questions I listed above.  Here some issues with the Pure PFM categorization:

1. Mobile Apps are a great way to have users start using PFM. If you hedge your bets that apps are the holy grail for PFM adoption, then I implore you to look at budgeting and other financial applications of the past (Microsoft Money anyone?).  Apps are just a modality to consume insights about your financial behavior. Like any other technology, they will find their natural demise.  PFM should be focused on data of consumer’s financial behavior and the insights you can derive from it agnostic to the delivery mechanism.

2. Even a Pure Player like Mint does a less than impressive job when it comes to basic functionality like expense categorization.  I have a hard time understanding with all the machine learning, neural networks and intelligent computing available out there, we are still faced with tools struggling to categorize our spending the right way. If Siri and Google Now can interpret our voice and translate them to text (accounting for various languages and accents), isn’t about time that we expect an expense categorization system which works and improves over time?

3. Analyzing overall financial health – Ron Shevlin calls this out his blog where the basics like budgeting, expense categorization and goals will only get you to a certain extent.  The real value of PFM comes in understanding your spending behavior over the long-term and be able to predict your financial future.  Allow me to illustrate – an ideal PFM should have the capability to not just look at your sliding window of income and expense over a limited time period – It should be able to look at this from the point when you started a real job over multiple years. A persons financial health is not just determined by their credit score or current  balance but a holistic view of their savings, earnings, future earning potential and other assets in the mix.

4. Imagine if a PFM can look at your income since you started working and the actual spend and savings you did over the period of time, it should be able to make a pretty good guess about what kind of financial personality you have and provide insights based on that knowledge. Projecting this further, the PFM should be able to tell when you can retire based on your retirement goals. There are PFMs out there which try to do this, but fall short in delivering it. A wealth of information is now available out there – this include the performance of your investment and retirement accounts, your savings, your asset values (depreciating vs appreciating) and the overall earning potential.

5. Here is where we start to move towards the grey area of  financial modeling which can go boom or bust depending upon your assumptions.  A well designed and thought out PFM should be able to interact with the user and make course corrections to reflect any changes to your financial behavior due to unforeseen events (like losing your job, divorce etc).  I tried using the goals feature in Mint. Even with a master’s degree, I cannot figure out how this works. Call me dumb but if I am kept in the dark of how Mint figured out how much  I should save for emergency fund or for retirement without an explanation, I am reluctant to trust that recommendation.

PFM re-imagined:

What would it take to capture consumer financial history over the lifetime? I am looking at the most unlikely place here for inspiration – Healthcare. A person’s health record over time is a trackable collection of data. Microsoft HealthVault tries to solve this problem by allowing an individual or a family to store their health records. Why can’t a PFM solution try to do the same? If a person’s financial interactions can be shared and stored in a vault like system, that would be a treasure trove for PFM analysis. Credit bureaus have a credit file which shows your credit cards/lines and loans but don’t have any information about your other assets or deposits/savings. As newer tools, technologies and players come into the market, dealing with a consumers financial DNA is a big data problem which is begging to be solved.

Will OFX be a standard way to solve this issue?

Maybe. Looking at OFX specs, it seems to me that it is purely conceived from the notion of opening up and solving data interchange issues between FIs. It doesn’t seem to address the issue from an individual’s perspective. Maybe its time the Yodlees, MoneyDesktops, Geezeos and Intuits of the world come up with an open PFXML format to store this unified customer financial data. Ideally a customer should have an option to port their financial history from the vault of one PFM provider to the other similar to transferring our health records. A HIPAA level standard to exchange this information in a secure fashion should also be in place.

Closing thoughts

Most of the PFM solutions today provide some help in managing financial lives of their users. They are very good at solving some of the issues and not generic enough to be adopted for all our needs. What is the point in having Mint  to look at bank accounts/credit cards/loans, use Credit Karma to track credit scores and Sig Fig to monitor my investments? The more tools I need to keep track of various aspects of my financial behavior, the lesser I am inclined and disciplined to stick to the financial resolutions I make.

An ideal PFM should be able to provide the following advice automagically:

1. Based on balances on the asset mix, provide advice on how to rebalance portfolio based on age. Many people think they have a balanced portfolio but end up buying mutual funds and stocks in the same category which skews diversification.

2. Provide advice on optimal number of credit products to own. Display the ratio of credit balance to overall credit limit for the individual to show what a healthy borrowing limit is and when the user is breaching this limit. (Stop nagging about how much they spent on coffee, instead provide more actionable insights).

3. If the user ends up carrying over balance in a card  and has enough money in savings to pay if off, notify them.  (Like Suze Orman advice in real-time).

4. If a user has a mortgage with a higher interest rate, advise them of available  lower rates and refinancing options based on current market conditions.

5. If a customer has a loan and enough savings and disposable income, display the interest they can save by prepaying the loan.

6. Provide financial projections and advise of how to save for college education and how small savings over a period of time will grow when junior is old enough to get into ivy league.

7. Analyze cash flow of user income and expenses and advise how much they can afford to save.

8. Provide ways to promote healthy savings behavior where parts of direct deposits are funneled into named target accounts like “Down payment for Next Home”, “Pay off Mortgage”, “Wedding at Mexico”, “College Fund” etc. Saved Plus allows you to impulsively save when you spend which I think is a neat way to promote healthy savings behavior.

9. When a user wants to spend money on binge purchases, show how that would affect their other savings goals in the long run. (MoneyDesktop has implemented this feature called “Guide Me” in a fantastic way – Video here).

FIs have a great opportunity to win over their customer base by providing relevant money management advice as part of their core offering – After all, that is the primary reason why someone decides to bank with them. Recognizing this and using this to win over customers is a must in the long run to stay in business. PFM players have the great opportunity of redefining money management and taking over the role of next generation of Online Banking.