Banking & Finance

Financial Data (Account) Aggregation – New or Old Concept?

Over the last few years there has been a spurt of Banking Mobile Applications and other Online services, the so called “New Banking Tribes”, which aim to deliver differentiated banking services to the end consumers, primary objective being improving the overall user experience.

Some of these initially started with the intent of providing targeted financial solutions such as Investment Management, and over time have expanded to providing a wider range of services to create a “Social Financial Lifestyle Platform” for the new generation. This started within the USA (Acorns, etc.), has gradually expanded within the EU (Revolut, Monzo, etc.), and now emerging across Asia, with new entrants in India (Niyo, Cred, Jupiter, Epifi, etc.) planning to or already having launched such solutions, and some in the Far East already having done it.

One of the primary themes emerging from such solutions, is Financial Data (Account) Aggregation.

This obviously presents a big advantage to the consumers who are now able to view their consolidated data across different financial institutions, and so are able to effectively manage their cash positions and then transact for different purposes.

While such a concept may appear to be very recent and novel, it has been thought of and attempted many-a-times over the last two and more decades.

As part of my association with an organisation at the turn of the millennium, out of our offices in the UK, we were creating one of the first Wealth Management Portal “Solution” and “Services” offering targeted towards the HNIs.

The offering was meant to provide a unified information and transaction portal for HNIs to view their account positions across banks, transfer balances, manage their mileage points for hotels and airlines, as also, be able to transact on investments and securities. Why HNIs? – because that was one of the highest revenue and profit generating segment for banks and hence such a solution would have afforded a relatively good payback.

This was when even Internet Banking solutions were still nascent and there were rare cases of adoption of online Internet Banking across EMEA. So, a Wealth Management solution offering over the Internet, providing data aggregation and transaction services, was obviously a bit “revolutionary”, and the success of which depended upon the banks participating in such a “joint exercise / venture”.

Since that time multiple banks have attempted this both in the Retail and the Corporate environments, and not sure how many such financial data aggregation solutions (banking or third party), over the internet did actually succeed (I would be happy to be stand corrected).

Data and customer secrecy, along with the competitive pressures and the “closed” approach of banks, were the main deterrents for adoption.

While I am not exactly conversant with the some of the minor details of the solutions being offered by the current entrants nor am a user of any, in my opinion, the perceived reasons for adoption are:

now it is primarily targeted towards the mass market i.e. Gen Y and Z,
it is digital / mobile (apps) technology providing much better and convenient user experience,
world and the view of banks is more “open” in terms of data sharing, O
Open Banking Regulatory and Data Standards where banks are exposing financial information via standardised APIs,
also, these new tribes i.e. the FinTech providers, fuelled by Venture Capital, do not immediately have to justify the revenues / margins on such a business and hence probably it is leading to greater adoption / co-participation.

Competitive pressure for the banks is now not a deterrent, but actually a motivation to make it happen

Many of these Apps are sourcing data from multiple banks via these Open APIs and providing consolidated financial information, albeit, in the areas of card and other spends, and thereon to transact i.e. retail type payments. Some with their Neo Banking platforms are planning to provide a little more, but again focused towards the retail segment.

Some of the key uses cases emerging for financial data aggregation are:

Balance Transfer – Transferring balances between savings accounts and credit cards. Useful to urgently fund any specific payment i.e. credit card payment, tuition fees, EMI, etc.
Consolidated Dashboards and Reporting – To view balances and holdings across relationships with different financial institutions. Quick information which can be used for a variety of purposes i.e. loan application, visa applications, etc.
Spend and Savings Analysis – Given that the individual is transacting across banking positions out of a single App
Automated (Robo) Financial Advisory – Towards Savings, Investments and Spends
Complex Transactions – Where regulation allows, be able to carry out Foreign Currency transactions across holdings out of a single App

Whether such financial data aggregation gets extended to other even more complex areas of banking, one would know as other businesses move out of the banks and to the new providers i.e. FinTech.

any business is about generating revenue and making money, and unless these new “tribes” create robust “revenue models” which justify the overall “unit economics”, survival of these Apps in a highly competitive environment will be difficult.

As I have previously stated in other writings, in an environment of imploding PE valuations and tighter availability of capital, further compounded by a world witnessing “recessionary trends”, it is very important for these new entrants to overcome the pressures of marking up valuations and instead focus on creating a “Stable”, “Sustainable” and a “Compliant” business, which delivers “Business and Technology Value” to the end consumers.

At a personal level though, I sincerely hope that this time around the concept does find greater acceptance, and the business models are such that it justifies its sustenance in the long run.

Paresh Madani · Retinue Advisory

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