When you enter your desired destination into Google Maps, the app plots out the fastest, most efficient route, even adjusting for traffic and coffee stops along the way. You don’t even need to enter your current location—Google Maps already knows where you are. What if that same predictive software existed for our finances? Imagine a future where you could outline your goals as a student—say, graduate, move to your dream city, save for a house, plan for kids—and an app would execute your optimal financial plan, rerouting and adjusting for “traffic” along the way.
For many consumers, the financial services industry is intimidatingly complex. Sure, we’d all be better off if we understood its intricacies, but most of us are already preoccupied by the practicalities: Can we refinance our credit card debt, student loans, or mortgages, and which should we prioritize? Could we save more? How should we think about investing?
Many well-intentioned startups and incumbents have ramped up their educational efforts to help answer those questions in recent years. But while having a strong basic understanding is important, I believe that the best way to cut through financial confusion and needless complexity is with software. Software is very, very good at distilling the key points we need to make decisions—and, in some cases, even making those decisions for us. Welcome to the era of autonomous finance.
The evolution of “auto-finance”
The earliest examples of “autonomous-finance” were robo-advisors like Wealthfront and Betterment, which provided an alternative to high-cost mutual funds. For the self directed manager, this service took the thinking out of which stocks to pick and how to rebalance; it even executed more complicated strategies, like tax loss harvesting. This auto-investing technology was so attractive to consumers (low fees!) that many larger asset managers, including Blackrock and Schwab, either bought one of the robo-advising startups or launched their own.
Next came automatic-saving applications, which squirrel away extra cash into a separate account, either by rounding up from purchases—putting away 50 cents after you buy a $2.50 coffee, for example—or by targeting a predetermined amount. These apps can be helpful in forcing a behavior that most of us don’t think about on a day-to-day basis.
Today, autonomous-finance companies are tackling one of the most pernicious financial black holes: credit card debt. Tally, for instance, takes over your credit card payments entirely by linking your bank account and your credit cards. The app consolidates all your credit debt into a single monthly payment at a lower overall rate. That monthly payment not only covers your minimum balances, but also knocks down your principal so you can become debt-free faster.
The future: Fully autonomous finance
Despite strides over the past decade, many more financial services verticals remain primed for software solutions.
One obvious category is student debt. Though there are dozens of programs for student debt relief across the country, just figuring out what they are, who qualifies, and how to apply can be bewildering. A software application could algorithmically evaluate all the government-sponsored programs and automatically alert borrowers when they qualify. To take this one step further, the software could even apply for them.
Another opportunity for auto-finance is the sometimes seedy world of debt settlement. Intermediaries exist, in part, because creditors can’t advertise settlement plans. (Imagine this automated phone prompt: “Press 1 to pay your bill. Press 2 to only pay half of your bill.” Even those able to pay fully would choose option 2.) Because debt settlement is difficult to regulate, it is full of bad actors. The process can be terrifying for consumers, often involving multiple collection agencies calling several times a day. Alternatively, software could evaluate which customers banks should consider settling with. Software would also show consumers their full range of options and the real downstream credit score effects. By being transparent and data-driven, such services could build trust in a highly stressful financial moment.
Auto-finance could also help optimize your revenue. Let’s say you are living in a metropolitan area, working 40 to 50 hours per week across a couple jobs. You’d like to earn more money, so you decide to pick up a couple extra shifts. How can you ensure you’re making the most amount of money for each marginal hour? Are your current 40 to 50 hours maximizing your time? Should you get another part time job at the local retail store or work for one of the gig economy platforms? Imagine a service that knows what you’re currently making, as well as the going rate of all the jobs available to you. Such an app could automatically match you with your best option—maybe even apply for you.
These are just a few consumer financial pain points that could be abstracted away with software, but the possibilities are many. Auto-finance could sign you up for insurance or transfer you to the most advantageous policy. If you’re an independent contractor, it could regulate your finances, including tax withholding, benefits, and savings. It could assist small businesses in optimizing cash flow.
There are still hurdles in the movement toward a fully automated financial future. Consumers need to trust that a software program will do the right thing. To combat distrust, many autonomous-finance companies currently prompt the customer to approve the recommended action before it’s executed by the software. And though aggregation services extract data like bank and credit card transactions, these data sets are rarely 100 percent reliable; they require work on the part of the company to ensure accuracy. It can also be difficult to assess the right course of action when looking at only a sliver of your finances, rather than the complete picture. You can now automate pieces of your financial life by cobbling together a series of applications: One for credit card debt, one for student debt, and so on.
We are in the early phases. The arrival of true autonomous finance will be the companies that provide the connective tissue between these sometimes competing needs, automatically monitoring and adjusting your financial roadmap over the course of your lifetime.