Financial Funnel

By John R. Engen

Bankers may not wholeheartedly embrace account aggregation, but they will need to offer it if that's what customers want.

Ever since the first Internet banking application was launched nearly six years ago, bankers have scrambled to keep ahead of the learning curve. With so many new technologies in play, executives can never be sure when something is a flash-in-the-pan or the next big thing.

Such is the case with account aggregation. Few bankers had even heard of the technology a year ago. Today, account aggregation Web sites ? most of them powered by so-called "screen-scraping" technology developed by vendors — are the buzz of the industry. Nearly every large institution is taking a closer look.

On the surface, aggregation appears a winner for customers. Most people have accounts with multiple financial institutions. Surveys indicate they crave the convenience of a consolidated, one-click snapshot of their various financial relationships and would trust their bank to provide such a service.

For bank decision-makers, how-ever, the rise of aggregation is a decidedly mixed blessing. Screen-scraping, as it's now practiced by vendors such as Yodlee Inc. and ezlogin.com Inc., electronically extracts information from bank Web sites at the behest of customers, but without the bank's knowledge.

Institutions are justifiably unnerved by the idea that a third party might play the middleman between them and their customers. They fret over privacy issues that come up when customers hand over passwords and user IDs to third parties. And they could incur potential liabilities in the event of a security breach. In their heart of hearts, many bankers would just as soon not have aggregation at all.

But bankers also recognize the inherent appeal of a tool that can make customers' lives easier. Indeed, many now assert that aggregation could become the sort of "killer app" the industry has been seeking to jumpstart online banking. The potential to create deeper, closer relationships with online customers explains why most large institutions are gingerly dipping their toes into the water. New York-based Citigroup Inc. was the first bank to offer an aggregation service, on its Myciti.com Web site. Other banks and major brokerage firms, such as Merrill Lynch & Co. and Morgan Stanley Dean Witter & Co., plan to follow.

"This is one of banking's last great opportunities to be the leader," says D.R. Grimes, chief executive of NetBank Inc., an Atlanta-based Web-only institution. "It's the most important product offering that we will have in the next two years, and something that will be very popular with customers. If banks fail to take advantage of it, somebody else will."

This kind of logic is hard to resist, if you accept the projections. Nearly a million people currently use aggregation for their financial services. Cambridge, Mass.-based Celent Communications estimates the number will rise to over three million in two years.

Such rapid growth confronts banks with a difficult choice. They could thwart the screen-scrapers by implementing more complex security procedures or by making frequent changes to their Web sites, but only at the risk of alienating customers who desire the service.

Alternatively, banks can introduce account aggregation under their own aegis. That gives them greater control over the serious privacy and security issues posed by the technology. The required financial investment is minimal. And numerous surveys show that consumers trust their bank more than any other type of provider to safeguard their financial information.

At the same time, bankers also fear losing part of the customer relationship. Virtually every account aggregation model entails sharing information with other institutions and third-party vendors. Chase Manhattan Corp., for example, has contracted with Yodlee for aggregation services. Many bankers are wary of importing customer account information from other institutions into their own Web sites. What's more, they fear the quid pro quo entailed in aggregation ? that they will have to share their own account information with other financial institutions and expose themselves to disintermediation.

On the brighter side, by providing a broader online picture of a customer's finances, account aggregation can help an institution cross-sell products and services. And the technology, perhaps in conjunction with electronic bill presentment and payment, could turn online banking into a "must-have" service. That would help institutions recover the investments they've made in that business. "Ultimately, this is a chance for Internet banking to finally boost the bottom line," says Octavio Marenzi, Celent's president. "Banks that move too slowly could regret it for years to come."

Explosive Force

Perhaps the most surprising thing about aggregation is that it's taken so long to arrive. The concept is powerful in its simplicity. Consumers provide their user IDs and passwords to an aggregator, which then visits the Web sites of their financial institutions and "scrapes" the relevant information from the providers' screens. Then the information is funneled into one, easy-to-read page, accessible with one logon. "It's a unique application, something that would be impossible to accomplish in the offline space," says Pamela Reed, vice president of strategic alliances for Wells Fargo & Co.'s consumer Internet services group.

Soon, proponents say, aggregation will become as commonplace as e-mail, offering everything from real-time bill-payment and funds-transfer capabilities to automatic net-worth calculators, financial planning advice and a full slate of analytical tools. "Aggregation itself is not a business; it's a commodity," says Vincent Passione, chief executive of Ameritrade Holdings subsidiary OnMoney Inc., a White Plains, New York-based provider of aggregation services. "It's the first step in building what we believe all consumers want: an interactive financial manager. That manager needs fuel, and the fuel is data."

Aggregation could also help redefine the way financial services are marketed by making better use of customer information. Proponents envision an aggregation service meshed seamlessly with an Internet banking offering, accessible through various devices, and bundled with fee-oriented services, such as bill-payment. Such a service, they say, could attract throngs of customers and even emerge as a profit center via subscriptions, advertising and, most significantly, cross-selling. "The major opportunity here is the ability to learn about your customers' other financial relationships, and then use that data to further your own agenda by cross-marketing to them," Marenzi says.

This concept of aggregation as a marketing vehicle, however, has sparked some controversy in the industry. Speaking at Thomson Financial Media's recent aggregation conference, a top KeyCorp executive revealed that her organization's online customer survey, conducted in June, uncovered fierce resistance to the use of marketing messages in this context. Mickey Mencin, senior vice president of electronic services, said Cleveland-based KeyCorp would therefore not attempt any cross-selling on the aggregator site it plans to introduce by yearend.

Proponents, however, claim that a strong financial aggregator eventually could become the storehouse for all of a customer's personal information, morphing into that customer's de facto portal for all Web activities. "The opportunities are limitless," says Gayle Wellborn, director of customer advocacy for First Union Corp.'s e-channels division.

Banks seem well-positioned to capture much of this business. Fifty-five percent of respondents in a recent survey of online consumers commissioned by Star Systems, Inc., a Maitland, Fla. electronic payments firm, said they would prefer to use a financial institution's aggregation service. By contrast, only 3% said they would opt for an independent third-party site. The upshot: consumers prefer to aggregate with a trusted brand, says Phil Riggins, a senior vice president and director of research for Washington, D.C.-based SWR Worldwide Research, which conducted the survey.

Yet the industry's response has been conflicted, at best. Chris Musto, senior financial services analyst for Gomez Advisors in Lincoln, Mass., tells about his recent visit to a large bank. Over the course of a day, he heard some executives extolling aggregation's virtues, and others condemning it with equal vigor. "Bankers," Musto concludes, "are having a tough time deciding whether or not this is a good idea."

An Ugly Affair

One can understand the anxiety. Account aggregation raises serious concerns about accuracy, privacy, security, liability and disintermediation.

"We don't think the technology is where it should be in terms of security and functionality," says David Kuhl, chief executive of $1.3 billion-asset Busey Bank, Urbana, Ill. None of Busey's 7,000-plus Web customers have asked him to provide the service, Kuhl says, although he can't say for sure whether any of them are using an outside aggregator. "Right now, our customers don't want it."

That's not surprising, considering the current unpolished state of this technology. In a March report, Celent's Marenzi describes screen-scraping as "an ugly affair." Aggregators must sift through a mass of extraneous information to extract the useful data fields. And financial institutions can hinder the process by frequently changing the layout and location of their Web pages. If software agents can't do the job in extracting required data, the aggregator must bring in a programmer. All of this, states the report, "adds a considerable amount of overhead to the system, frequently leading to delays and performance issues."

Despite these problems, aggregation Web sites are winning customers. Among the most prominent early movers are OnMoney, Microsoft Corp.'s MSN Money Central, and My Finances at Intuit Inc.'s Quicken.com. OnMoney's Passione, for one, claims to have registered 475,000 users between January and August. "The attitude of bankers has changed in the past six months to, "If you can't beat 'em, join 'em,'" says Timothy Keehan, a Washington, D.C.-based partner with Mayer, Brown & Platt.

In a recent survey of 20 bank chief information officers, Celent found that aggregation had become their top concern. By not participating actively in aggregation, Marenzi asserts, banks risk reducing themselves to mere data providers, which could diminish their online franchises. They also could forfeit the sales opportunities that come with direct customer contact on their Web sites. "It's either aggregate or be aggregated," he says. "This game is moving very quickly, and those institutions that sit back and wait to see what happens could be too late."

Yodlee chief executive Anil Arora says bankers were slow to respond to opportunities presented by the Web but now realize the name of the game "is utilizing and viewing the Internet through the eyes of the users." To that end, bankers have begun working with each other and technology providers to establish standards aimed at making aggregation more attractive to consumers and other banks.

Two industry groups ? the Banking Industry Technology Secretariat and the Financial Services Technology Consortium ? are uniting to confront the security and privacy worries of both banks and consumers. Daniel Schutzer, consortium chairman and director of external standards for Citigroup, envisions customers authorizing banks, not the aggregators, to provide information to authorized third-party sites.

Those sites would be issued separate IDs and passwords, or communicate in some other direct way with a bank, creating a solid audit trail that could be used to track and distinguish aggregator usage from that of the customer. That could help solve disputes over payments and identify the source of security or privacy breaches. The trade groups also are working to improve the accuracy of that information by laying the groundwork for direct data feeds between institutions and aggregation sites.

The screen-scraping technology used by most aggregators today is prone to errors and misinterpretations. By using direct data feeds that feature the OFX or IFX communications protocols, the integrity of that data would be preserved and constantly updated, Schutzer says.

Revenue Center?

There are, of course, limits to such cooperation. Most banks still use a batch processing system to update accounts, rendering the idea of real-time updates moot. And heavy usage of OFX feeds can slow a bank's systems or even cause them to crash. Schutzer thinks a hybrid of screen-scraping and OFX will be the rule for a while yet. Furthermore, smaller banks could reject efforts by their larger brethren to create standards that appear intended to benefit those with powerful aggregation capabilities.

Some smaller banks already are forging their own partnerships. OnMoney is among the third-party sites seeking co-branded relationships with banks. Passione claims to be in negotiations with about a dozen banks, and he promises that participants will get a cut of revenues from products sold to their own customers through OnMoney's Web site. "It turns a cost center into a revenue center."

Meanwhile, most large banks are plotting their own differentiated offerings. Some, such as FleetBoston Corp. with its NetFriday service, are establishing sites with independent identities. Others plan to make aggregation part of their broader Internet banking service. After conducting numerous focus groups on the issue, Wells Fargo concluded that the only thing holding back aggregation is the lack of a trusted brand. "We want to put our name on it," Reed says.

Consumer education will be crucial to the success of those efforts. In the Star Systems survey, 85% of respondents said it is "very important" that aggregators comply with federal banking regulations, while 51% said they believe third-party Internet firms were covered by those regulations. "If people understood that third-party aggregators weren't subject to federal regulation, it would strengthen the banks' hand," SWR's Riggins says.

Banks are working to promote that understanding. Most big-bank sites now feature information sections on aggregation warning about the dangers of using third-party sites. The industry as a whole may launch some sort of advertising campaign to boost those efforts.

A sense of urgency is now palpable. In recent years, banks have devoted enormous financial and human resources to Internet strategies while seeking to portray themselves as being proactive customer agents. Most of those efforts, however, have failed to deliver on their promise and continue to be a financial drain. While aggregation still has numerous hurdles to overcome, it could become just the sort of foundational tool that can help banks achieve their broader Web goals.

Mr. Engen is a freelance writer based in Minneapolis.

Copyright © 2003 by Banking Strategies, published by BAI.

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