New Tools for Financial Institutions

“Give me your bank-account number, username and password, and I’ll make life easy for you. Trust me.”

If I were to approach you with that line, the chances are you’ll ask me to go take a hike. But if your bank makes a similar request, the stakes will change–in fact, you may even part with information about your accounts in other banks. So here’s what I do. I sell my data-aggregation product to your bank, which gets hooked because by giving you a better way to manage your personal information, it gets a goldmine worth of information on you–your income, nature of transactions, personal preferences–giving it an edge over its competitors. And I can sell my technology to almost anyone–banks, brokers, portals, travel agents, airlines, or online shops. Welcome to the world of data aggregation.

What’s in it for the end user?

What do you get? You get a personal portal from where you can access and aggregate your online financial (bank, investments, stocks, loans, mutual funds, credit-cards) and non-financial (e-mail, reward points with various airlines and hotels, news, weather, sports updates) accounts. Better still, you can customize this information to be presented in a way that you want, like adding all bank deposits and all airline rewards points separately. At this website, you can even compare the prices and features of products from different websites. Some services also offer online-payment facilities and remind when to pay your bills or when investments mature, and so on.

This way you don’t have to enter usernames and passwords at different sites, or yourself consolidate all information at one place. The aggregator does the consolidation for you at a single portal. You just use a single PIN (personal identification number) to access it.

The convenience angle is fine, but aggregation’s full worth to the user will come when you can do transactions electronically; when, for example, you can reinvest a maturing investment in bonds with agency x to stock market investments with your broker.

Behind the scenes

How does the aggregation service work? The aggregating website represents the user to the target services. That is, the user saves his username and password for, say, yahoo mail at the aggregation site. The aggregation site will have pre-written scripts, which will take this information and present it to Yahoo, the way Yahoo expects to see your username and password.

The aggregation site will now download your mail and keep it on its server. Similarly, it will download say your account status information from ICICI Bank and stock prices from the NSE and so on, and in turn present it to you in one interface when you log in.

Because different websites have different access methods, the aggregator has to write separate access scripts for each site from where aggregation is to be done. And if the target site changes their method of data access, then the script will have to be changed for aggregation to work. Typically, aggregators offer to their customers (banks and their financial institutions) a set of scripts for popular Web destinations. More could be written for specific sites as per customer needs.

Too good to pass?

Oozing of convenience? Of course, but there is something beyond. Data aggregation could well be the next big weapon for financial institutions as they battle it out for market domination. The user discloses to the aggregator all online account numbers, usernames, and passwords. So, if the aggregator is compromised, then users stand to be compromised of all their online accounts, instead of just one.

Most prominent aggregators claim that they have impeccable security–secure servers, data encryption, private addressing, multiple firewalls, SSL (Secure Socket Layer), the works. But concerns still exist. After all, credit-card details have often enough been taken out from ‘secure’ e-com sites.

Why banks get hooked

The financial community’s first reaction to aggregation was litigation (First Union Bank filed suit against Paytrust aggregators). But, they’ve now begun to use the services of the aggregators–Citibank’s online facility, myciti.com, for instance, uses Yodlee’s aggregation technology.

This suits banks because they get served on a platter, information on their most well-heeled customers, since those with many online accounts are the ones who opt for aggregation. Now suppose, you bank with bank A, bank B and bank C, and use bank A’s aggregation facility. Since you’ll go to bank A’s site more often, chances are that you will know more about its offerings and your banking

decisions could be more in Bank A’s favor.

User’s data is transferred to the aggregating server. This not only makes the aggregating institution (and potentially the aggregator himself also) privy to your total Net worth and portfolio details, but also gives them access to information on when your investments with other financial institutions are maturing. They could use this information to target their offerings better at

you.

There will, of course, be a cascading effect if bank B and C, too, get on to the aggregation bandwagon.

Minuses for banks

Aggregation raises issues of violation of intellectual property rights and diminishing online brand value, as customers will no longer visit the financial institution’s site as frequently; instead they will go the aggregator’s. Also, there is the issue of who will be liable–the bank or aggregator–if money is stolen electronically, or data collected through aggregation is otherwise misused.

The plus is that the banks will at least try to ensure security. BITS (Banking Industry Technology Secretariat), whose members are mostly CEOs of prominent American banks, has already set security guidelines– monitoring all Internet traffic, keeping PIN and account numbers on separate Web servers–for aggregators.

Juhi Bhambal