When traditional desktop software migrates to the Web, it’s often with interesting side effects. In the case of Web-based personal-finance software, you get added functionality: the ability to (anonymously) compare your financial decisions and performance with those of others. Mint, a site that already allows its customers to compare their spending habits, introduced a personal investment tracker on Wednesday. The tracker should be updated to offer comparisons in the coming weeks. A service from a startup called Cake Financial already enables comparison of investment histories, but it doesn’t track spending.
Stephen Jenvey, vice president of business development at Fidelity, believes that adding social features to financial sites could overhaul personal finance for the average person. “It shines light on people’s finances that they would have never seen,” he says. “Historically, as soon as you see the emergence of a new layer of information and transparency, it definitely changes the [investment] market.”
Mint makes it easy, for instance, to see how the user’s expenditures compare with those of others in the same city, or in different parts of the country. The user could employ that information to, say, negotiate a better deal on rent. Cake users are able to track the behavior of the site’s top-rated investors and compare their own performances, which could lead to smarter investment decisions.
Today, discussions of expenses and investments typically involve just a handful of people: a personal financial advisor and a client, for instance, or colleagues gathered at the water cooler. What Mint and Cake are doing is leveraging the aggregate data collected on their sites and making it visible so that people can make more-informed financial decisions on their own.
The move is part of a larger commitment to the principle of transparency in the finance industry. For instance, both Mint and Cake notify people when they incur fees from their banks or brokers–fees that might otherwise get lost on itemized statements, or in the dense text of service agreements.
Mint’s target demographic is mainly twentysomethings who are settling into their first jobs, says Aaron Patzer, the company’s founder and CEO. Patzer believes that his customers are interested in tracking their money but not in poring over a lot of information. “Our view is that young people want in and out of finances in about five minutes or less,” he says. That’s why Mint’s site aggregates information automatically, sorting it into categories so that people can easily review their spending habits. “One thing that’s important,” he says, “is that this opens Mint up from being a great tool for tracking expenses, to opening it up to people with more-complicated financial situations, where tracking investments is crucial.”
Mint uses an account aggregation service called Yodlee, which collects information from financial institutions. Currently, Mint is able to access data from 6,500 different financial institutions and 2,500 investment and brokerage firms. One of the company’s main technological achievements is its ability to make sense of all these complicated data feeds, which often contain gibberish, and present their contents in a tidy, categorized manner.
While Mint aims at offering a quick, one-stop shop for investment and personal-spending information, Cake provides a more in-depth view of investments only. It is also focused strongly on the social aspect of investing, which, says CEO Steven Carpenter, is inherently social anyway. “We’re already social with investing. There are investment clubs, and we talk about it at cocktail parties,” he says. Cake is aiming to be the Facebook of investments, by letting customers create social networks of people who share investment interests, track others’ progress, and compare the specifics of their investment decisions. “You want to know how you’re doing compared to other people, and how they got there,” Carpenter says. “You want to know if you own a bunch of stocks that other people are selling.”
Unlike Mint, Cake built its own data aggregation platform, so it doesn’t use a third party like Yodlee. Instead, Cake’s software logs in to a brokerage firm’s site on behalf of the user and collects information by scanning Web pages. This allows the company to gather more-specific bits of information, says Carpenter, and to access more than 10 years of historical investment data. Once Cake has that information, it runs it through algorithms that calculate investment efficiency and ranks the user compared with other Cake customers. The user then has the ability to review the investment strategies of higher-ranked customers.
Both Mint and Cake are providing an important alternative to brokerage firms that manage investments and charge a fee, Carpenter says. “With both Mint and Cake,” he says, “we don’t want you to move your assets to work with us.”
Fidelity’s Jenvey sees Web-based financial tools like Cake and Mint as moving the industry forward. He says that if the social aspects of money management and the commitment to transparency are adopted by the industry at large, it will “benefit the investor and household, and ultimately cause evolution within the industry.”
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