Twenty years after the birth of the internet, aggregation remains a hot topic in financial services. Today, aggregation enables consumers to access all of their accounts in one portal, while also serving as a valuable data collector for financial institutions. In Europe, where regulators have supported aggregation, banks are learning to use it as a revenue-gathering vehicle. In the US, banks are still flip-flopping over whether or not they support the use of aggregation. As the battle continues to play out, we expect aggregation to play a key role in helping financial institutions, and associated technology providers, focus on what is best for the consumer.
This post marks the first of a 4 part series on aggregation:
- Near History
- Current Aggregation Wars
- Europe, Data and Confusion in the US FI Sector
- Putting the Customer First
Part 1: Near History
In 1997, Microsoft & Intuit created secure protocols for transmitting personal financial data, called OFX, in collaboration with Checkfree. Both companies had a vested interest in this technology: they were building their own personal financial management software (PFM). At the time, however, financial institutions balked at the new technology, preferring to keep a tight stronghold on their customers’ financial data.
Around the first dot com boom, there were a growing number of venture backed aggregation services such as CashEdge, Yodlee, Teknowledge, and Vertical One. These services allowed consumers to access their financial information on PFM sites without having an “official relationship” with the financial institutions. This was a major win for the consumer, who could now manage all of their accounts in one place thanks to the early movers of PFM services: Intuit, Microsoft, and Yahoo! Finance.
During this time, some of the major banks joined the PFM “race” by building their own portals to aggregate customer accounts from other financial institutions. In the final part of this series, we will share a comprehensive review of the products & services services offered by banks for PFM- let’s just say you should get your magnifying glasses ready if you want to find the services or read the fonts.
In 2006, at the dawn of Web 2.0, Mint.com disrupted the software vanguard, Intuit, with an online service that Intuit later acquired in 2009. Founded on the premise that Intuit’s service was sub-optimal, Mint leveraged Yodlee for aggregation and offered a graphically rich and engaging PFM experience that also incorporated best practices of contact management to engage customers (something that continues to be the challenge with the “liability” side of PFM. Finally, the value of aggregation started making sense to the consumer.
Through the last ten years, since the advent of Mint.com, account aggregation has discovered countless new use cases, from PFM to providing data for banks, advertisers, hedge funds and wealth managers. Despite using aggregation for their own purposes, banks have surfaced a rotating set of objections to aggregation, citing security concerns, owning their customers, and data costs. We will elaborate on these contradictory objections in Aggregation Wars.
Over this period, the industry has seen oscillating phases of growth and consolidation. Notably, Yodlee bought VerticalOne right out of the gate in 2001; CashEdge sold to FiServ in 2011 for a rumored $465MM; Teknowledge filed for bankruptcy in 2013; ByAllAccounts sold to Morningstar for ~ $30MM in 2014; and Yodlee sold to Envestnet for $590MM in 2015. Some of these companies, like CashEdge, built popular consumer-facing products, while others, like ByAllAccounts, reached widespread adoption by wealth managers. With so many different use cases, it’s clear that aggregation technology is no one-trick-pony.
Most recently, two new entrants have been eroding incumbent market share with “newer” technology. Quovo and Plaid have managed the banks’ objections and provided clearer value propositions to the mobile developer community. Quovo’s focus on wealth management and Plaid’s “instant funding” product show that there is still plenty of room for innovation and growth of aggregation technologies.
The big questions for the future of aggregation will include:
- How are Financial Institutions leveraging Aggregation for Wealth Management & Messaging Platforms?
- What are the opportunities and threats posed by aggregation for Financial Institutions?
- Who owns the customer’s banking data?
- Which Messaging Platforms will Enable Aggregation & Wealth Management?
- Which Wealth Management Platform Builds or Buys an Aggregation Service?
- How will A.I. impact aggregators?
- Will the CFPB become more assertive in supporting consumers?