Machine learning can revolutionize online financial management tools by not only tracking payments, but creating a way to change payment habits in the future, says John Frankel, a founding partner of the New York-based ff Venture Capital.
"This is a complex problem laid simple," Frankel said. "The consumer is often overwhelmed by multiple interfaces, forms and calls to understand what they need to do to stay on top of their finances."
Frankel's firm is among the early stage investors in Clarity Money, which provides a service that is similar in some ways to the personal financial management companies like Mint and Geezeo that use aggregation to provide a single view of a user's finances. PFM providers typically shy away from supporting payments due to security concerns, but they nevertheless pitch themselves as a tool to improve users' finances by spotting unnecessary expenses.
New York-based Clarity Money, which launched in late October, takes the next step by giving consumers a way to act on its advice. Its service uses actionable "buttons" that can delete recurring payments or renegotiate bills.
"It's never simple to just add or delete a payment service," Frankel said. "Clarity changes that through the application of machine learning and customization to surface relevant and timely financial solutions and alternatives."
For instance, people often do not unsubscribe from unnecessary services because it takes too much effort, or they don't know better financial products are out there, and don't have the time or interest to put in hours of research to find alternatives, Frankel said. "Clarity makes finding solutions to these types of problems as easy as pressing a button."
Clarity has raised about $2.5 million thus far, with other investors including Soros Fund Management, Maveron Ventures and Bessemer Venture Partners.
It currently monitors recurring payments bills, savings, credit cards and loans, but plans to move into other financial management in the future. And while its plans include what founder Adam Dell calls "channel relationships," Clarity at the start is more of a disruptor to banks than a collaborator, presenting "better offers" for payment products and commencing negotiations or account switches.
"There are a lot of tools out there that are designed to improve financial health, but this is more like an account manager poring over your books and learning over time," said Dell, who has also been a financial technology investor in his career, backing OpenTable, among others. "Auto loans, rentals, they're all recurring payments," Dell said. "This presents them in a single view."
Clarity Money's app links to bank accounts and recurring payments to search for similar services at lower costs or to spot redundancies, using machine learning to improve its performance over time. The app also monitors daily payments, creates a budget off of that information and creates an FDIC-insured savings account. A "button" is available in the app to execute changes to the user's recurring payments, bills or subscriptions.
Upon pushing the "button" Clarity does the work of cancelling the recurring payment. A partnership with a negotiating company called BillShark manages the recurring bill negotiations.
"We're about 20% a PFM service and 80% an advocate," Dell said. "Our systems and engines are designed to uncover things that consumers can do to improve their financial health."
Clarity does not charge a fee. It's revenue model is similar to Credit Karma, which earns fees from lead generation.
"Our recommendations evaluate a myriad of options for consumers and function independently of our fee structure," Dell said. "We think of ourselves like Google, which is paid by participants in its search results but whose search algorithms are sacrosanct.":
Its model is also similar to that of Mint before the PFM company was acquired by Intuit in 2009. In its original form, Mint would review users' financial accounts and suggest alternatives, such as a credit card with a lower interest rate, and make money from those referrals. This model was unsustainable; users would switch accounts at the start, but Mint would have to provide free PFM services to them indefinitely.
Clarity can avoid that fate through a more diverse set of services that lead to more regular consumer adjustments and referrals, Dell contends. The company may also take advantage of an increase in subscription payment models as mobile commerce expands.
"I think Mint stalled by limiting itself to primarily credit cards and investment accounts. It never really delivered on the promise of advocacy," Dell said. "We think by delivering on that promise, consumers will look to Clarity Money for all kinds of financial relationships."
Frankel's firm also invests in other financial tech companies such as Addepar, CardFlight, Drop, Fluent, Sure, Transactis and Socure.
The growth of artificial intelligence presents a vast opportunity, according to Frankel. Payment companies have shown an interest in AI, which can analyze data to improve software on the fly. AI is seen as a potential way to improve everything from mobile point of sale technology to anti-money laundering systems.
"The willingness of financial institutions to work with startups is making the space more interesting than ever—coupled with the willingness of the consumer to engage more actively," Frankel said. "We're now seeing significant advances in AI, machine learning and other technological toolsets that are opening up opportunities that were never previously accessible or conceivable."
But for financial management, the model faces challenges, according to Gareth Lodge, a senior analyst at Celent. PFM is already a crowded market, Lodge said, adding subscription management isn't necessarily that hard.
"I would imagine they're the kind of people who manage their money," Lodge said. "Personally I have very few subscriptions and they're all correct…nor have they been hard to cancel."