What Fintechs Should Watch in Q2 2023
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Account aggregation gives customers the ability to connect a range of financial accounts — including checking accounts, savings accounts, investment accounts, credit card accounts, mortgages, HSAs, FSAs, and much more — in one place.
Financial data aggregation brings all sorts of advantages for both the customer and the institution. For instance, customers can see their full financial life in a single glance and make smarter financial decisions based on what they see. Banks and fintech providers can use this same information to create highly individualized offers, promote automated financial guidance, analyze their customer base, and much more.
Whether you work at a financial institution or a fintech company, here are eight questions you should ask when looking for a financial aggregator.
The first question to ask is whether the financial aggregator covers all the institutions they should cover. Put simply, how many connections does the aggregator have?
Since there are just over 5,000 banks and 5,000 credit unions in the United States, it’s essential for the financial aggregator to cover them all. From there, add the many other financial accounts worth covering, from HSAs to insurance companies, and you’re looking at connections to a minimum of 15,000 institutions in North America.
The next thing to consider is how the connections are implemented.
The most common method of aggregation is via data scraping, which is a process whereby a user inputs their username and password so the financial aggregator can scrape that information from an institution and display it via aggregation. In this case the aggregator, through automation, logs in directly to the user’s account on the institution web site and essentially acts on behalf of the user to navigate the site and scrape the required data. With this method, the data is being obtained without the explicit consent of the institution and is liable to have issues with connectivity in the long term as the institution modifies its website or attempts to block the financial aggregator.
The other method of aggregation is via an API, which is an open data exchange between the aggregator and the institution. This method, while still in its infancy, is seen by both institutions and aggregators as a significantly better method of aggregation for a number of reasons, including: (1) it is inherently safer since the aggregator never sees or holds on to the end-user login credentials to the institution, and (2) it is significantly more reliable since there’s a documented contract (in the form of an API) between the aggregator and the institution that is being adhered to by both parties. This means that the data 'handshake' will not change without the aggregator being made aware ahead of time.
It’s also important to be aware of open authorization mechanisms such as OAuth. The OAuth protocol includes a dialog presented by the institution to the customer in which the customer enters their login credentials to the institution. Since the dialog is presented by the institution, the financial aggregator never sees these credentials, making it significantly more secure for the end user and the institution. To complete the OAuth protocol, once the credentials have been accepted by the institution, the institution then sends a unique token back to the financial aggregator to maintain and use to communicate on behalf of the end user with that institution in the future. With the user's unique token, the financial aggregator can then securely communicate with the institution's API to ask for and receive certain types of data on behalf of the customer.
Altogether, this is a topic potentially rife with confusion and even obfuscation, since some financial aggregators use the term “direct connection” to refer to connections that use APIs and data scraping. Because of this, some institutions end up choosing a financial aggregator only to later find out that what they thought were API connections are actually connections that use data scraping. This can cause problems down the road when those connections consistently break down.
Best to be completely clear about the terminology each financial aggregator uses before signing up for anything.
If an end user has to wait too long to access their account data via a financial aggregator, it will do them little good. They’ll give up on the aggregator and decide to log in directly instead. This is particularly important the first time they connect the account, which is the make-or-break moment for most users.
Before you sign up with a financial aggregator, it’s best to try the process directly yourself with a range of accounts. Be sure to time each one to see if there are any outliers.
In addition to connecting to a full range of possible institutions, it’s also essential to have multiple connections to each institution, since it’s always possible that a connection might become deficient for any number of reasons. This is why it’s best to find an aggregator that has multiple connections per institution — especially for those institutions that are used most frequently by customers.
In short, you’ll want an aggregator that has the connections that your customers will need in order to have the best experience and access to all their data.
The primary reason to have multiple connections to each institution is that this redundancy allows the aggregator to switch to a different connection mechanism in the event that a connection breaks or becomes deficient.
If a financial aggregator doesn’t have multiple connections, there’s no recourse but to wait until the aggregator finds a way to fix the connection.
If the aggregator doesn’t have multiple connections, it’s possible that a broken connection could result in not receiving data for weeks or possibly even months. Unfortunately, when a connection remains broken, your customers won’t blame the data provider or the institution with the broken connection. They’ll blame you. They’ll think it’s your software that’s broken, and you will suffer the reputational damage, which can be costly.
To find out whether a financial aggregator is built for the future of banking, ask the following questions:
Regardless of which aggregator you choose to work with, be sure to ask each of the questions above before fully committing. You can see a list of financial data aggregators here.
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