“Most people don’t want to learn about personal finance in detail; they just want to know they aren’t screwing up,” said Tim Chen, who is CEO of Nerdwallet, the comparison site for financial products from credit cards to mortgages.
For a self-professed finance nerd, this lack of consumer obsession is something of a disappointment. But he and the 80-plus researchers and writers have learned to live with it and by listening to their consumers they design advice that meets users’ needs and leaves them alone to enjoy life.
For example, Nerdwallet personal loan product page sorted loans by interest rates.
“All our consumers hated it. They wanted it sorted by monthly payments, which seems odd until you put yourself in their shoes and see what is going on month by month,” Chen said. “We have to meet them where they are. If you start by wagging your finger, that’s a good way to get them to hit the back button on their browser.”
Nerdwallet has three million members and more than 100 million visits each year, Chen said. Onstage at Money 2020 with Angela Strange of Andreesen Horowitz, she said the airline industry is far ahead in comparison shopping and its engines like Kayak and Expedia save consumers $10 billion.
Chen said the comparison engines in financial services are barely scratching the surface.
You could spend six hours reading about 529 college savings programs for your kid and still not know the ins and outs, he added. Nerdwallet users want to be triggered that the 529 exists, but they don’t want to learn all about them, just enough to find the best accounts.
“Education for education’s sake is overly complex. This is one areas where user research has been shocking. I am such a nerd and I love learning the ins and outs of all these things, but that’s not what the average person wants to learn.”
For individuals, Chen said, Nerdwallet and other comparison sites have made financial products shoppable.
“Our missions is to bring clarity to all of life’s financial decisions. Things that seemed opaque are much easier now. On the financial industry side, we are having an effect too. We are getting a lot more coverage to the two or three best players in every industry in term of product features, and that is ultimately a good thing. I have noticed over time that no matter what financial products you look at — from term life insurance to cash-back credit cards — there often are two, three or four that are top of the market offerings out there. Making that very clear has brought a lot of share to those products.”
So how does Nerdwallet make money?
As it explains on the site under Advertiser Disclosure “Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Here’s a list of our partners.”
As you can see, the site covers a large number of competing providers, especially in credit cards. Nerdwallet explains the cards’ incentive programs which can range from generous travel rewards to cash back to no-fee cards. The explanations are clear so consumers can choose the offer that is most attractive to their spending patterns.
Nerdwallet analysts become subject matter experts through their experience rating banking accounts, credit cards, mortgages or online brokers. They talk to the banks and other financial institutions to get their side of the story. Sometimes in a new field where analysts have no personal experience, like factored lending (upfront cash at a reduced value for your unpaid invoices or receivables), they may initially misunderstand the product. When providers complain, the analysts meet with the providers to learn more about how their product works and what’s important for consumers.
Chen and other staff also spend considerable time in living rooms across the country learning about personal finances from real people.
“Living rooms are one of the most fundamental parts of product development,” said Chen. “You see quite a disparity across the country.”
He describes the country as a barbell with haves on one side and have-nots who struggle month to month, on the other.
“The have-nots care about getting access to credit, will I get approved for this credit line, what will be my limit, can I get a free credit score, how to get paychecks early and micro investing. People with more financial choice have a different problem. They know they are attractive to financial institutions and see so many options, bells and whistles. They want help in comparing their options.”
It’s become an oft-repeated truism that 50% of the country can’t come up with $400 for an emergency. Chen thinks it is largely true, but the reasons are not obvious.
“They probably earn more than they spend each month but many are in the service economy and that makes their income more volatile. If their car breaks down or a pipe starts leaking, they often have to turn to short-term revolving credit. A credit card with a 30% interest rate is attractive compared to overdrawing your bank account or getting a payday loan.”
He has seen individuals and couples who spend money freely and pay little attention to rising credit card balances until they hit a wake-up call moment and start budgeting.
“It became quite a familiar story,” he said. It made him look for a way to track money in and out more easily.” The Money section of its site offers tips for budgeting, tricking yourself into saving, earning money from side gigs and cutting expenses.
“NerdWallet has a free app that helps you track your cash, discover new ways to save and even build your credit score. To remain unbiased we chose not to include ourselves in the recommendations below, but we think you’ll love us anyway,” the site says.
Indications are that comparison sites still have a lot of work to do.
“Banks are making a lot of money,” said Chen, “about $180 per family per quarter, from services that aren’t much different from the competition.” The lion’s share comes from net interest margin — paying little on deposits and charging more for loans.
“There’s a lot of inertia in banking — it’s hard to switch checking accounts,” he said at Money2020, citing the changes bank customers would have to make in direct deposit of their paychecks and revising the bill payments they have set up in their accounts.
“People get divorced more often than move their checking accounts,” Chen said.
The result is banks are making outside profits, $26 billion in the third quarter.
“You would expect that over time, because there are so many banks offering very similar products that through better pricing the excess profits should moderate, but that hasn’t been the case.”