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Free and Easy
A new Web site makes managing your finances painless by doing most of the work for you, and it dispenses the kind of penny-pinching advice your parents did. It’s the perfect recipe to appeal to young up-and-comers. Or so Mint believes.
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Aaron Patzer has always been interested in personal finance. At age 15, he used the earnings from his lawn-mowing business to invest $2,500 in a mutual fund. “I read The Richest Man in Babylon [a classic personal-finance book], and calculated that if I put away a certain amount per month and ramped up my investment as I got older, I would make sixty-five billion dollars,” Patzer says. “However, my dad later told me that had I accounted for taxes and inflation, it would probably be closer to four billion.”
The revelation disappointed Patzer, but the investment still paid off. After five years, Patzer’s $8,000 total investment grew into an astonishing $24,000. His first foray into money management left a major impression on him, and by age 24, he followed the wave of software engineers to Silicon Valley in search of his $65 billion. As with most young engineers, Patzer worked hard, day and night, which left little time for a personal life, including keeping track of his personal finances. When he finally got around to logging into Intuit Inc.’s Quicken — a personal-finance software program — he discovered that he had to painstakingly comb through five month’s of his financial activities in order to balance his accounts. Patzer spent several hours categorizing 300 transactions until it dawned on him that he could design a computer algorithm that could do it better and faster. In that moment of frustration, a business was born.
Two years later, Patzer’s company, Mint Software Inc., is one of the hottest startups on the Web. The site got rave reviews when it debuted September 18, earning a $50,000 prize for best presenting company at TechCrunch40, a conference showcasing 40 new startups. (Patzer plans to distribute the prize to his software engineers as a reward.) Just two weeks later, Mint won best of show at Finnovate 2007, a gathering of 20 online financial, banking, and lending services hosted by Netbanker.com.
Beyond the accolades of its peers, Mint.com was an immediate hit with the public. It attracted 150,000 people after it opened to public registrations, more traffic in a single day than online banking site WellsFargo.com. To keep up with demand on launch day, Patzer’s employees worked nonstop for 36 hours, adding servers, coordinating with programmers and technicians in California and Germany, and trying to fix the service — which had slowed to a crawl under the sheer weight of registrations. Today, Mint has more than 65,000 registered users and is managing more than $2 billion in transactions. It is on track to reach more than 100,000 before the end of the year.
THE SITE
When Mint says it will manage your finances, that’s exactly what it means. This is not about record keeping; it’s about being watched over by your very own money guardian. Drawing from your bank and credit-card statements, Mint consolidates all your transactions into a single database and analyzes them for spending trends. Thanks to Patzer’s algorithm, the Web site can sort and categorize transactions with a 98 percent success rate. Off-line software like Quicken, which uses a database of 10,000 merchants to check against, might confuse and miscategorize your wireless bill as your Internet bill, but Mint claims to have a database of 14 million merchants — almost every merchant in the U.S. — to guard against that.
Colorful animations swirl around you as you dig deeper into your finances, zeroing in on the merchants where you spend the most. The amount you spend on different categories, such as shopping, fuel, and groceries are presented to you with bar graphs and pie charts that can be broken down even further into the amount you spend per month at, say, Starbucks.
If that’s not useful enough, you can set it up so that you get text messages and alerts that monitor large purchases, low balances, and credit-card bill due dates. The site even has a free personal-finance blog, written by Patzer and others, that gives tips and suggestions on personal-finance issues. As early as next year, Mint plans to offer ways for people to manage their investments, loans, car payments, and mortgages, along with ways to compare and contrast their spending habits with the average user living in the same city.
Mint offers these services for free, because it hopes to capture revenue from referral fees. If it sees that you’re paying $100 a month for Comcast cable Internet service, it might suggest that you switch to Verizon DSL for $80 a month. If you earn 5 percent with your savings account at Washington Mutual, it might suggest that you switch to ING to earn 6 percent. The site seeds these recommendations with a mix of sponsored and unsponsored results and ranks them by how much money you’d save. Mint earns revenue from sponsored companies. In exchange, the sponsors are featured on the recommendation list with flashier, eye-catching logos accompanied by advertising text they supply. To maintain its credibility, Mint still lists the cheapest alternatives first, regardless of whether the companies are paying to be listed or not.
THE MARKET
In June 2005, Patzer was coming off seven months of self-employment, coding the site fourteen hours a day in his apartment in Sunnyvale, California. The decision to quit his job and sink his savings into the startup was a major risk, and he was beginning to have serious doubts about whether the site would be successful. He’d perfected his 30-second pitch about the company and hit the Silicon Valley networking scene for several months, keeping a server and laptop on hand in the back of his truck for demo purposes.
One night at a networking event, Patzer met Josh Kopelman, a venture capitalist who’d sold his startup, Half.com, to eBay for about $350 million in 2000. Kopleman was now using that money to invest in other Silicon Valley entrepreneurs. Although Kopelman gets more than 1,200 pitches a year and has only funded a handful of ventures, he was immediately intrigued by Patzer’s idea. The site’s business model is one of the main reasons why Kopelman invested $750,000 in the company.
Mint is moving into two well established marketplaces. Financial management software like Quicken and Microsoft Money has been around for a while, and 44.6 million households already do their banking online, according to Forrester Research. However, growth in the space has been almost non-existent over the past five years, and online financial management programs are still fairly new. Meanwhile, Mint is not the only company that exists as an online service. Internet startups like Wesabe offer features similar to Mint’s — analysis of spending trends, for example — but lack some of its simplicity, design, and ease of use. Banks like Wells Fargo also have features that attempt to categorize transactions, but not all large banks can consolidate your statements into one database. “What attracted us to Mint was the combination of quality of entrepreneurs and a quality idea,” Kopelman says. “Eleven of the top 20 best selling applications are personal finance applications like Quicken, Microsoft Money, and Turbo Tax, but no one has really cracked the nut to do it online.” Today, Mint has the potential to take an existing billion-dollar market and change the rules of the game, he says.
But it’s going to be a young person’s game, says Cathy Graeber, a vice president and principal analyst for Forrester Research. Because wealthier, more affluent people tend to use programs like Quicken — and have too much data invested in them —it’s unlikely they will switch to online versions easily. “Money management sites like Mint and Wesabe will appeal to younger consumers earlier in their financial lives,” she says. “What will intrigue them is the ease of using sites that automatically categorize all their expenses and allow them to set up budgets.”
SECURITY
Once Patzer had the money he needed to expand Mint beyond the small circle of friends and family who were testing the service, he needed to address the biggest elephant in the room: security. In order for you to set up your own account, Mint requires login and password information for your online bank and credit-card accounts — a red flag for a lot people wary about the amount of personal information available on the Internet.
To secure the site against hackers, Patzers says Mint spends between 10 percent and 15 percent of its budget on security-related matters. He’s purchased and established the best firewalls that money can buy and has even hired friendly hackers to find weak spots in the company’s defenses. Mint also tries to quell people’s fears by not asking for any personal or identifiable data — not your name, address, or credit-card numbers. It does need an e-mail address, but you don’t have to provide one that is personally identifiable. And none of your login information is stored on its hard drives, says David Michaels, the company’s vice president of engineering. Instead, it uses a third-party company called Yodlee to download your transaction data.
Yodlee has been vetted by industry giants like Bank of America, Chase, Charles Schwab, and Merrill Lynch and, since its inception, has gone almost nine years without a security breach, says Melanie Flanigan, a spokesperson for Yodlee, which is based in Redwood City, California. Yodlee has an in-house security office that monitors its systems 24 hours a day, seven days a week. Some of its security features include secure and redundant data centers, multiple firewalls, and multi-layered encryption. The company also undergoes rigorous audits from its clients and outside companies, Flanigan says.
As For Mint, its servers are located at an undisclosed location behind multiple locked doors, watched over by security cameras, three different hand scans, and a man trap that keeps intruders from passing through sets of doors unless the ones behind them are closed. Employees undergo rigorous background checks that scan for unusual criminal and financial history. Access to data is limited on a need-to-know basis, Michaels says. “Even if the headquarters were stormed, the machines wouldn’t work without additional passwords and security.”
On the software side, Mint has multiple levels of firewalls, while its machines are compartmentalized from one another like a fortified castle, Patzer says. In addition, Mint has paid a hefty, but undisclosed, sum to hire some of the best Internet security firms in the business to try and penetrate its defenses. Automated programs operated by third parties periodically attempt to hack the system, while friendly human hackers are hired to do the same. In one case, Mint even gave the source code of its site to hackers to see what they could find. All their attempts to break the system were unsuccessful.
Giving Mint, or Yodlee, your credit information is far safer than providing it to the waiter at a restaurant, Michaels says. “You hand a credit card to a server and they disappear with it. They can get your name and the CCV code printed on the back — they have it all and they know who you are.” Although people should be vigilant in protecting their identities, 90 percent of fraud occurs off-line, Michaels adds. “If you look intelligently at what the risks are, people are more comfortable with online banking in general. They see the value in those services and are willing to trust those providers.”
Mint’s statements about security aren’t going to convince users that it’s safe. “In reality, most people are too worried about security, but it’s not going to change,” says Jim Bruene, who tracks online financial services on his Web site, Netbanker.com. And while Yodlee is a secure company that has been vetted and used by major industry players, no one outside the space is going to know it.
Bigger banks already are starting to offer online services like financial management to their customers. Mint, however, is in a better position because it lacks the bureaucracy and red tape that makes it difficult to create a flashy and intuitive Web site. Companies like Citibank and Bank of America have the resources to create services similar to Mint — and could buy Mint with spare change from an hour’s worth of transactions, Bruene says. But most financial institutions also lack the talent to design creative Web interfaces that appeal to younger users. As for software like Quicken and Microsoft Money, the software always will appeal to an older, more affluent niche that likely never will switch to Mint because of caution and lack of tech-savvy.
For now, Mint has the momentum. It arrives at a time when personal finance is becoming more relevant to a younger generation of professionals who are squeezed by skyrocketing health-care payments and lower retirement benefits. These new generation of Web surfers will need to learn how to save and manage their budgets. Fortunately, they also are more comfortable storing and sharing their personal data online. If Mint can tap into this new trend and clear up its privacy and security perceptions, it has the potential to reach a large, uneducated and frustrated group of savers eager for someone to do the hard and tedious work for them.
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