Ever since Trov, the real-time insurance firm, appeared on the scene, I’ve been wondering what else could real-time finance do. If you are not aware, Trōv allows you to insure a smartphone or laptop or anything else you value for hours, even minutes.
The company no longer exists – it was acquired by Travelers Insurance group in 2022 – but the idea is still brilliant. The main reason is that it turns the traditional model of insurance on its head. What is the traditional model? Annuities based cover. You renew insurances year-on-year. The reason for this is that, historically, it would cost too much for an insurer to deal with you more than once a year. Now, thanks to digitalisation, you can deal with insurance every single day at no cost. That’s the big change.
So, apply that thinking to APR. The Annual Percentage Rate is typically on loans and cards and calculated and applied at that level throughout the year. What would happen if you could turn that into a DPR, a Daily Percentage Rate. In some ways, obviously, it could be confusing, particularly if the DPR is higher than the APR, but it also might be tempting for those who just need a few days line of credit.
Unfortunately, this can drag us down the path of pay-day loans and buy now, pay later, but we are definitely getting into a world of real-time, shorter-term credit and insurance. What about deposits then? Couldn’t my bank move my money into more efficient returns in real-time? Give me some interest on my balance every day whilst it is in the black; tell me how to cover my exposures for the next few days when it is in the red.
Financial services is moving into a real-time, automated world of intelligent money where algorithms will move our balances and cover our exposures automatically, if we let them. Forget asking for insurances, loans, credit and savings … your account will do all that for you, if you let it.
It is PFM+, and I’ve seen a few examples already. Most are early days, but the fact that I could delegate authority to my account to sweep up small change and donate to charities is one example. It’s been around for a while – every time you pay, the remainder of the last two digits are given to your preferred charity – is an example of where we are heading. But let’s take it a step further. What if your bank account algorithm can work out money received and money spent and automatically move funds between your savings, loans and investment accounts based upon the risk profile you have trained it to behave with?
This would mean that any money on your account over $1,000, for example, would be moved to a low interest, instant access account. If the algorithm can see you’re heading for an overdraft this week, then it would automatically and instantly offer you a short-term loan of 24 hours with interest of 0.05% per day.
Obviously, there are dangers here – those interest rates can be punitive – but the real-time, instant flex to manage your bank account without you having to think about it, is where the future lies.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...
