This article was originally published in Banking & Payments Asia May 2013, Issue 51

 

ACCOUNT AGGREGATION is a service that provides the ability to automate the retrieval of public and private information from different sources or web sites. In a banking context, it is the ability by which banking accounts are linked for the purpose of consolidating information or ease of access for account holders.  For example, the user logs on to his/her online banking secured site, with aggregation, he/she is not only  able to view the details of that particular bank account but all the other external banking accounts that he/she owns.

Aggregating accounts can be particularly useful for users with many banking (checking, savings, current and credit cards) accounts or for families who have multiple financial goals, since the statements give a complete picture financial health, assets and the ability to execute necessary transactions in a single site. According to Ernst and Young Global Consumer Banking Survey 2012, “Customers with only one bank have fallen from 41% to 31%, while those with three or more have increased from 21% to 32%”.  The writer himself has 5 different accounts from different banks and is finding it hard to manage them. We observed that an aggregation that is automated and consolidated is generally the motivator behind the adoption of this service. Other extension of aggregation includes aggregating utility bills and investment information. Account aggregation is normally included within a Personal Finance Management (PFM) solution where it makes a lot of sense to consolidate all accounts into a single dashboard to have a holistic view of one’s financial standing, view financial trends and thereafter being able to budget and plan goals in a more realistic manner.

Current reaction to account aggregation

The aggregation concept is not new in the Western part of the world where companies like Mint.com in the US have been doing this for years but in the Asian region and other developing countries, this service is normally met with a mix of surprise, curiosity, scepticism and even outright rejection. After having talked to some major banks within the Asian region, here are four general reactions usually encountered.

1)      Immediately saying that it is not allowed by the Central Bank. What we observed is that most are doing a half-bake guess and is not even clear where in the regulation a bank is not allowed to do so. In most cases, it is not even defined because regulations always lag technology. The key to this answer is that the user is the one that willingly signs up for this service where he/she will have to provide username and password of the external accounts to aggregate.

2)      Integration nightmare. Banks have the idea that they need to go to other banks and get their approval to integrate from the backend but the truth is, it is not needed as aggregation services is able to pull data from the front automatically without any form of integration.

3)      Fear of security. Banks are scared that they would be sued if their secured site has been hacked and the username and password of other external banking accounts will then be compromised.  Depending on the provider of the aggregation service, the username and passwords is normally encrypted even within the server and normally not even stored in the user device. If there is a breach, the hacker would rather run havoc in the existing internet banking site then spend more precious time trying to unlock these details.

4)      Afraid of customer service nightmare that user’s accidentally transfer from one account to another. In this case, our response is that for a customisable aggregation service, the bank set features that are has a Read-Only function where it does not allow for any transactions or movement of money to take place.

 

Why aggregation is attractive for banks and why should they be worried if their competitor launches it?

There has been many reasons  given in the industry to deploy aggregation services. Some sources say that it results in as much as 50% reduction in customer churn. This is because when a user has all their details in one single place, the effort to move everything to another account is very high.

Whilst the team in the online banking worry themselves dead, the credit card department immediately sees glitter especially when you are able to know the credit limit of what the user is getting from other credit cards and what that particular person is spending on. Now that is a golden opportunity to launch new customer acquisitions campaigns via tailored offers. Drilling down further, depending on the Bank’s ability to analyse the incoming aggregated transaction details, the Bank is able to profile the users, segment, merchants and spending behaviours better.

One might think that this alternative form of “spying” is not the way to do business, but in truth, it is a competitive world out there. Ultimately, if Banks don’t provide it, others would. As a matter of fact, Perfectsen has developed a solution allowing them to start aggregating banking accounts without any approvals, knowledge or communication directly with the Banks. In such a case, the Central Bank losses control since third party entities are not under banking jurisdiction and moreover, hosted in a foreign country.  Banks themselves will lose the opportunity to stay ahead of the game.

Possible strategies that banks can consider

The approach to this game should be viewed as very similar to the approach banks take to add bill payment facilities in their online banking. If you want to be a leader especially in smaller markets, go first, go wide and go fast. We believe for smaller countries, the top three institutions to have an extensive aggregation reach will take 80% of the market.

For the smaller banks who want to get an upper hand on the bigger competitors, start looking for collaboration. In some countries, there are third party companies that are partly owned by various banks (usually smaller ones) to deploy a particular service or to gain economics of scale. It might be good time to start exploring such services.

An alternative option is for a bank to start with a slightly more cautious work-around by using e-statement uploads solutions where a user is able to upload their e-statements from other banks. Though it is a more cumbersome method, it mitigates the fear of the automatic account access option.

Of course there is always the wait-and-see option.

We have seen that aggregation service is definitely wanted by customers. So if the banks don’t provide it, eventually other companies outside the banking circle would do so. Even some media companies and mobile operators are already considering this. The big question is, do the banks and regulators want to take a proactive or reactive approach? Judging from the speed of technology adoption, I would not recommend the latter because it might be too late by the time you decide to do so.

 

About Perfectsen.com: User experience experts providing consultation services and development of customised solutions/ apps to increase user engagement and conversion for the banking sector. Among others, they provide banking account aggregation services via automatic scrapping or e-statement /pdf uploads and can be combined with Personal Financial Management (PFM) solution, targeted cross-sell advertising and merchant funded rewards.