The Aggregation Bandwagon

In some ways it`s like the gold rush all over again. Except this time around, there are data miners, instead of forty-niners. Ever since the opening of the wild, wild Web, the rush to capitalize on valuable consumer information has been a dream come true for marketing gurus and technology consultantsu00e2u20ac”all eager to tap into the lucrative potential of cross-fertilizing personal data with available products and servicesu00e2u20ac”the end being satisfied customers and profits.

What could be more American, right? Not exactly. For years it`s been an uphill battle for corporations to persuade consumers that cross marketing and date mining will provide better access to more products and services they really want. Today though, the tide appears to be turning. Research indicates that consumers want their banks to offer what`s known as account aggregationu00e2u20ac”true “one-stop shopping” for e-commerce-related services. Forrester Research, a Cambridge, Massachusetts-based firm, says that more than 60% of U.S. households have expressed an interest in such services. A study by Celent Communications, another Cambridge-based research firm, estimates that as many as 19 million Americans will use aggregation services by 2003, with another 16 million coming online a year later. In response to this sea change, Wells Fargo & Co. jumped on the bandwagon by offering online account aggregation to its 2.6 million customers through wellsfargo.com. With a single user ID and password, customers can now save time and view their consolidated financial picture in one place. Within six weeks of the February launch of its Wells OneLook service, the Minneapolis-based bank had 50,000 customers signed up to collect information from Wells Fargo and other institutions about their various bank investment, credit card, and online travel-award accounts. While the results were impressive, they were not altogether surprising. The bank`s online customers had indicated through internal studies that they were more willing to trust the bank to collect sensitive financial information than a secondary financial services provider or a technology company. Wells merely had to make the process easy. The decision was made to partner with Redwood Shores, California-based Yodlee, a leading provider of account aggregation software. “It saves people time,” says Diana Moy, vice president of the consumer side of Wells Fargo Internet Services. “They don`t have to go from site to site to see what they have.” Such a scenario would have seemed unthinkable just 18 months ago. That was when the battle lines between financial institutions and account aggregators were drawn by a lawsuit filed in December 1999 by Charlotte, North Carolina-based First Union Corp. The suit tried to stop PayTrust, a Lawrenceville, New Jersey online bill management company, from collecting data, or “scraping,” the bank`s website for its customers` financial information. By late 2000, however, the bank had gone over to the other side, signing an agreement with Yodlee to scrape other institutions` websites. Wells Fargo, FleetBoston Financial Group, Citigroup, Bank of America Corp. and Centura Banks, among others, have followed suit. While banks may have decided they`d rather switch than fight, offering the service is not as simple as placing a new tab on a website. Significant questions about the legal liability of aggregation remain, regardless of whether a bank or another institution collects the data. On top of that, the operational difficulties of providing a service that is expected to evolve in coming years puts a premium on keeping pace with industry innovations or else face the prospect of losing customers to those who do keep pace.

Maximizing leverage

With those risks in mind, the financial services industry has newfound interest in account aggregation partly as a result of fear that nonfinancial competitors could disintermediate banks` positions with their customers even further. Besides technology providers such as PayTrust, Corrillian Corp., Yodlee, and Vertical Oneu00e2u20ac”now part of Yodleeu00e2u20ac”Internet service providers such as Yahoo! are also offering the service. Likewise, nonbanks such as American Express Co., Providian Financial Corp., and Merrill Lynch & Co. have launched their versions of such services. Aggregation does, however, raise the possibility that banks will lose control of their customers` attentionu00e2u20ac”a prospect that could ultimately harm the value of their franchises. In part, that is because aggregators control the marketing messages that customers see when they review their finances. If the bank is not providing the service, then it is unlikely they are getting their marketing message across, either. Yet aggregation creates a unique opportunity for banks to increase their share of their customers` wallets. “What has attracted more and more banks to the service is the ability to get information about customer holdings at other financial institutions and use that information to their own advantage,” says Octavio Marenzi, a managing director with Celent. It is an advantage banks have not had for more than 30 years.

As mutual funds, investment managers, insurance companies, and other financial intermediaries grew during that period to control larger shares of customer financial assets, banks were left with little knowledge about the true financial holdings and activity of their customer base. With account aggregation, banks can leverage their trusted positions to collect, maintain, and analyze customer information as a way to deepen their relationships with customers.

FleetBoston had that strategy in mind when it began offering account aggregation services to its 600,000 small business clients in March. The bank saw account aggregation as a valuable addition to its online banking service, a key component in its quest to capture a growing share of the entrepreneurial market in New England. By getting customers comfortable with checking their accounts online, the bank believes it has a better chance of getting them to use other online services. “Our strategy is to leverage our customer base, get them into online banking, extend that to account aggregation, and then expand them into other services,” such as online payroll and merchant services, says David Fingerman, executive vice president and director of eBusiness within FleetBoston`s small business services group.

“Once you get them to check their balances online, you have a better chance of getting them to take the next step. But if they don`t even check their balances online, it is very unlikely they will do their payroll online.” The bank decided to roll out the service with its small-business clients to keep it on a small scale. That way, Fingerman says, the bank would have an opportunity to communicate with customers and learn how to make the service better before offering it to the larger consumer market. Besides, they realized they had a ready market, given that 79% of business owners surveyed last fall ranked account aggregation as “most valuable” from a list of possible products and services. American Express also saw account aggregation as a means to a better understanding of its customers` finances and as a first step toward expanding those relationships. Unlike commercial banks, though, American Express had little information about customer holdings. Aside from the investment and insurance products the company was selling, it had little knowledge about its customers` financial lives beyond what appeared on charge and credit card accounts. To overcome that disadvantage, the company decided to work with Yodlee to build an aggregation service that allowed customers to manually input information about offline holdings such as homes and autos. Like most institutions, the company offers the service for free but, unlike most, it offers the service to customers and non-customers alike, says Julie Bensen, vice president of Internet implementation and reporting in Minneapolis. “For us, if they`re not a client of ours, we can show them all the services we offer,” she says. And, as a cobranded aggregator using Yodlee`s service, she says the company controls what kind of messages and links customers see. Aggregation has gained in popularity as institutions strive to have the first offering in the market. The hope is that the innovator will have an opportunity to acquire new customers relatively cheaply. On the consumer side of the business, Bank of America and Citibank were among the first banks to offer the service while Fleet was the first out of the box targeting companies with annual revenues of $10 million or less.

Education is key

In many ways, account aggregation requires banks and customers to discard many traditional business methods. Cliff Wilke, director of bank technology with the Office of the Comptroller of the Currency in Washington, D.C., says aggregatorsu00e2u20ac”including the financial institutions that offer the serviceu00e2u20ac”are asking customers to share passwords and personal identification numbers from other institutions, a 180-degree change from the past. This, he says, could create confusion among consumers. “Does the consumer grant their consent to collect the information or do they grant their consent to use that information?” Wilke asks. “And do they understand the difference?” Such distinctions are why Wilke says education is a “key, paramount issue” for banks considering offering aggregation to their constituents. Wilke, who helped pioneer the Mobil SpeedPass and Mobil Go Card for ExxonMobil Corp. before joining the OCC two-and-a-half years ago, says that education also helps from a business standpoint. When Mobil launched Speedpass and Go Card a few years ago, for example, the company put customer representatives in the islands at its gasoline stations. The reason was to ensure customers understood the purpose of the product and how to use it. “Consumers` first contact [with a product or service] will determine whether they like it,” he says. “Many times, a lot of resources are put into technology and security of a product and then the company does not follow up by educating the consumer. It`s like going 90 yards [in a football game] and not scoring a touchdown.” Key to the education process is making sure customers know what the service can and cannot do. Part of the concern is that once customers see all their financial information in one place, they will want to initiate transactions from all of those accounts on the aggregator`s website, says Jaime Punishill, a senior analyst with Forrester. Currently, most aggregators allow their customers only to view their holdings and to transact among accounts held at that bank. But Portland, Ore.-based Corrillian and others are working toward giving customers the ability to initiate transactions from all the institutions whose screens were scraped. Given the limited capabilities of the current generation of aggregators, there is also a concern among regulators that consumers will initiate transactions based on faulty or out-of-date information scraped from another financial services firm`s website. Explaining the limitations of the service can prevent such mistakes. Aggregators need consent from customers not only to scrape information from other sites but also to use that information for marketing purposes. After all, it is that information that makes aggregation valuable. Asks Celent Communications` Marenzi: “Why bother offering aggregation unless you are able to use the data?” he asks. As a result of those concerns, Wilke says board members should engage management about the strategic implications of offering account aggregation and maintain ongoing reviews of the service in the manner they would with any other banking service “Someone needs to fully understand the issue of account aggregation if they are going to do it,” he says.

Top security needed

As expected, security remains a primary regulatory concern for banks offering account aggregation and screen-scraping services. Whereas until recently, a hacker could only get access to a password for one account or institution, now, because all of the passwords to a person`s various financial holdings are kept in a single place, the risks are heightened for customers and institutions, alike, should a hacker succeed. As a result, traditional security measures may not be sufficient to handle what could go wrong. Indeed, most security measures involve quizzing a phone-in or online customer about the maiden name of their mother. But such information is publicly available. So should there be a higher level of security? In years to come, technology such as retinal scanners and voice recognition units may provide a solution to prevent unauthorized persons from accessing private information. Until then, however, banks need to take precautions. For the most part, financial institutions appear willing to allow the screen scrapers like Yodlee maintain customers` passwordsu00e2u20ac”and with good reason. American Express`s Bensen says that despite Yodlee`s very visible online presence in recent years, no one has successfully breached its security. If they were to succeed, however, the legal issues are murky. Some experts say that financial institutions remain responsible for their customers` data, even if a third-party aggregator presents it. No one will know the extent of that responsibility until a case is brought to court.

In the meantime, the OCC and other banking regulators are hoping to avert problems through its guidelines and examinations and by cajoling financial institutions to defend themselves against the worst possible scenario. “We would prefer that we do a good enough job on our advocacy side to make sure it doesn`t happen,” Wilke says. Banks that have flung themselves headlong into aggregation are taking additional precautions. Wells Fargo`s Moy says the technology that enables its screens to refresh with updated data every time a customer logs on reduces the likelihood that customers will initiate transactions based on faulty information. FleetBoston is using its contract with Vertical One to help manage its operational and security risks. The bank, like American Express and others, first made sure that the software company met its threshold for security. Then it was a matter of negotiating a contract that included provisions alerting both sides of the impact a deterioration of operational standards would create. Bensen says American Express has a lot at stake. “Part of our brand is the trust our customers have in us,” she says. “We wanted to make sure that Yodlee met our requirements.” Aggregation risks are not all internal, however. Punishill says directors should ensure bank management is controlling the information they put onto their websites. Companies such as San Jose-based Vyou Inc., for example, offer aggregation-control products that identify and control who has authorization to access customer data and who does not.

Ease of operation

Even after a bank has decided to offer account aggregation, has implemented security policies and procedures, and even taken steps to educate its customers and control who has access to its customers` data, the institution still must make the service work seamlessly. Operational dilemmas involve how to handle customer service calls and incorporating the aggregated information into the bank`s existing online site. Incorporating the aggregated data into FleetBoston`s website in a way that made the service look, feel, and act like it was part of the bank`s site was primarily a design issue, says Fingerman. Customer service calls, on the other hand, were a more vexing question. For example, they had to resolve whether it was better to answer questions internally, or to transfer callers to a third party, or to the service provider.” We had to learn how to deal with the customer service experience so that the customer didn`t feel like they were going someplace else,” he says. These are just the first steps, say bankers, regulators, researchers, and software makers. Once on the road to aggregation, financial institutions will have to keep pace with technological advances to maintain their competitiveness. Besides the prospect of giving customers the ability to transfer money among different financial institutions from their aggregated site, FleetBoston, for example, is looking at setting up a system that alerts business owners to make sure there are enough funds in their FleetBoston checking accounts to cover payroll accounts at other institutions. Over the long term, account aggregation may help create more fundamental changes for the financial services industry. Most aggregators want the ability to understand a customer`s complete financial picture so that they can ensconce themselves as trusted financial advisers. The upside is that the institution can sell everything from stocks and mutual funds to go along with traditional checking accounts and mortgages. Fingerman says aggregation is an important issue for FleetBoston`s small-business group. On the one hand, the bank has an enormous opportunity to become the one-stop shop for its small-business clients. Time and financial pressures mean that small-business customers must rely on a hodge-podge of advisers, ranging from accountants and attorneys to brokers and financial planners for different components of their businesses. Small ventures also are handicapped by lack of staff and owners have limited time to learn about new services. By offering the ability for business owners to conduct all of their financial services at one spot, even if they hold accounts at a variety of institutions, the bank hopes to become that trusted financial adviser. The risk, says Punishill, is that the bank will take a parochial view toward what it sells. “It raises serious issues about banks` business models.” For banks to become truly become trusted advisers, they would have to resist the temptation to give preference to the products and services they create. They might also find themselves in the position of having to advise customers to move their money elsewhere for a better deal. “If you decide there are some advantages from aggregating customers` information, you won`t be successful if you only recommend your products,” he says. Punishill says the kind of people most likely to use account aggregation would reward those institutions that can be objective. That is because those customers are particularly concerned with having choices among “best of breed” products. Aggregation, he says, gives them the ability to do the type of one-stop shopping that banks are hoping to achieve. It is ironic, then, that as aggregation gives banks a thorough understanding of their customers` finances, it may ultimately cause a disaggregation of the entire banking business, forcing banks to decide whether they want to create products and services for others to sell, or sell the products and services of others.

Either way, now that the genie is out of the bottle, banks will have to play along. As American Express` Bensen says, consumers will not wait. “In the long run, this is something you have to have to maintain parity with your competitors,” she says. “We`ll get to the point where people will move their relationships to get this service.”