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How Consumers and Companies Benefit from Data Aggregation
Data aggregation continues to gain importance in the
financial services world. But what value does it offer?
PaymentsJournal sat down with Paul Diegelman, VP of digital
payments and data aggregation at Fiserv, and Sarah Grotta, director of the Debit
and Alternative Products Advisory Service at Mercator Advisory Group, to delve
deeper into the topic.
Defining data aggregation
Data aggregation, or what Diegelman referred to as “consumer
permission financial data aggregation,” can be broken down into two parts:
consumer permission and financial data aggregation.
The consumer
permission component of the definition refers to the fact that in data
aggregation, consumers should consent to the process and provide the necessary
credentials for their bank. In return, consumers expect security, privacy,
transparency in the use of their data, and some form of benefit.
The second component, financial
data aggregation, consists of the financial data that is pulled—or
aggregated— from thousands of sources, including banks, credit unions, credit
card platforms, investments, mortgage companies and other payment providers.
Aggregators like Fiserv have built what Diegelman referred to as an “underlying
set of pipes,” allowing these parties to connect together in a faster process
and deliver something of value to consumers.
Visa’s $5.3 billion
Plaid acquisition
Visa’s January 2020 announcement of its $5.3 billion
acquisition of third party data aggregator Plaid caused major players in the
payments world to focus more of their attention on data aggregation.
Though open banking is not mandated in the U.S., there is a
growing interest on the part of consumers and small businesses to connect their
bank and credit union accounts to a third party app or platform. Data
aggregators such as Plaid, MX, Fiserv and others are needed to facilitate this
connection and the sharing of information, making it available not only through
P2P payment apps like Venmo or Zelle, but also through private label debit
cards like GasBuddy and Cumberland Farms, mortgage originators, and some
digital-only banks.
Visa’s acquisition underscores how important data
aggregation has become and reveals the direction it is heading. According to
Grotta, Visa’s decision to buy Plaid gives it “a jump start in what is becoming
the private sector approach to open banking in the United States.”
Consumers are
interested in using platforms that manage their finances
The results of the 2019 Expectations & Experiences: Consumer Payments survey from Fiserv indicated that consumers are interested in several financial management techniques that would require data aggregation.
In the survey, over 3,000 consumers ranked their interest
level in the following financial management techniques:
from different organizations using a single online location or app.
connected to their bank and credit card accounts.
would allow them to track spending in different budget categories across multiple
cards.
For all three options, over one-third of the respondents
were “Extremely Interested” or “Very Interested.” The generational difference
was noteworthy. In some cases, Generation Z consumers reported being four to five
times more interested in using these techniques than older adults.
Data aggregation
benefits consumers and businesses
Diegelman provided PaymentsJournal with a clear example of
data aggregation making the consumer experience smoother.
“Let’s say a consumer applies for a mortgage, and as part of
the qualification process they need to provide three months of bank statements,”
he said. Today, many mortgage originators are “providing the ability for the
borrower to input their banking account credentials into the originator’s loan
system, which then connects to an aggregator like Fiserv or Plaid.”
This means that consumers can avoid the headache of bringing
in paper bank statements or finding, scanning, and then emailing the statements
as PDFs. Instead, such an approach offloads the work to an aggregator that
provides the digital rendering of that statement directly into the mortgage
generator’s platform.
“It’s entirely possible that this makes the mortgage process
go much faster for the consumer. Speed and convenience are two dimensions data
aggregation can provide, and consumers value speed when it comes to their
finances,” added Diegelman.
Data aggregation helps businesses, too. If a business wants
to increase its customer base, and needs information to grow, using a data
aggregator is an obvious opportunity.
Beyond that, though, data aggregators have already built the
infrastructure needed to retrieve data from a banking or financial services
platform and, at the consumers’ request, send data to a permissioned
third-party. It would be extremely difficult, costly, and time-consuming for
individual companies to take on the burden of building out thousands of
connections themselves, when they can instead opt to take advantage of already
in-place data aggregation systems from aggregators with strong data security.
Consent and privacy are
hallmarks of a strong data aggregator
Strong data aggregators must live up to expectations of both
sides of a transaction. When consumers want to connect their bank transactions
to other apps, they do it for a specific purpose and expect their data to be
used for that purpose. They have privacy expectations regarding who sees their
transactions and how secure the transactions will be. Financial institutions,
banks, and credit card platforms on the other end of the transaction have
similar expectations.
Furthermore, even though a consumer provided their username
or password via an app or platform of their choosing, this does not mean that the
app has access to the credentials. Instead, the consumer’s credentials are often
held in the smaller realm of data aggregation providers who offer security as
part of their aggregation offering.
Data aggregation
enables faster payments
Data aggregation is already working to enable faster
payments. For example, if a consumer has to pay a monthly fee for their child’s
school lunch, but the school only accepts ACH payments, it can be tedious for
the parent to find their checkbook and routing information. Alternatively, a
school website with an aggregation component would allow parents to connect
their bank account using their bank account credentials.
Another strong example of data aggregation enabling faster
payments is the use of P2P payment platforms, such as Venmo or PayPal, instead
of writing a check or going to the ATM to withdraw cash. After linking a bank
account with the app, consumers can send money to others with the click of a
few buttons. The recipient can then immediately deposit the funds into their
account.
Grotta noted that data aggregation services may also be the
mechanism that launches real-time payments in the point-of-sale environment.
“It will certainly be an area to watch to see if new apps or payment devices
connection with aggregation start developing new POS payment capability outside
of the current networks being used today,” she said.
The future of data
aggregation
Looking forward, Diegelman identified two major developments
related to data aggregation that are already underway: the shift away from
screen scraping and the evolution of open banking.
The legacy method of data aggregation, known as screen
scraping or credential-based harvesting, relies on an aggregator writing
scripts and automating the same process a consumer would use to log into their
bank. Then, the data that has been requested gets pulled.
The legacy method of screen scraping may create a burden on
the technical infrastructure of banks, or may be a less-secure practice than
other options. Thus, Diegelman expects larger financial institutions to continue
to shift toward a form of direct connection such as OAuth, a token-based model
that provides a dimension of privacy and consent.
Secondly, open banking is maturing in the U.S. market at an
advancing rate that is expected to continue. With that in mind, Fiserv became a
board member Financial Data Exchange (FDX) in 2019. FDX brings together
payments industry leaders that want to “develop standards around account
aggregation with the goal of balancing consumers’ desire to utilize and share
their data for some purposes and banks’ prioritization around data security and
use cases.” Standardization by leaders in the industry will be needed to
successfully expand the open banking market.
Conclusion
Data aggregation is currently experiencing high growth in
the financial services world, and that growth won’t be slowing down anytime
soon.
With aggregation, the convenience and speed demanded by consumers
is made possible. Ultimately, maximizing the power of data through data
aggregation services benefits consumers, businesses, and financial institutions
alike.
The post How Consumers and Companies Benefit from Data Aggregation appeared first on PaymentsJournal.
View all episodes
By The PaymentsJournal PodcastData aggregation continues to gain importance in the
financial services world. But what value does it offer?
PaymentsJournal sat down with Paul Diegelman, VP of digital
payments and data aggregation at Fiserv, and Sarah Grotta, director of the Debit
and Alternative Products Advisory Service at Mercator Advisory Group, to delve
deeper into the topic.
Defining data aggregation
Data aggregation, or what Diegelman referred to as “consumer
permission financial data aggregation,” can be broken down into two parts:
consumer permission and financial data aggregation.
The consumer
permission component of the definition refers to the fact that in data
aggregation, consumers should consent to the process and provide the necessary
credentials for their bank. In return, consumers expect security, privacy,
transparency in the use of their data, and some form of benefit.
The second component, financial
data aggregation, consists of the financial data that is pulled—or
aggregated— from thousands of sources, including banks, credit unions, credit
card platforms, investments, mortgage companies and other payment providers.
Aggregators like Fiserv have built what Diegelman referred to as an “underlying
set of pipes,” allowing these parties to connect together in a faster process
and deliver something of value to consumers.
Visa’s $5.3 billion
Plaid acquisition
Visa’s January 2020 announcement of its $5.3 billion
acquisition of third party data aggregator Plaid caused major players in the
payments world to focus more of their attention on data aggregation.
Though open banking is not mandated in the U.S., there is a
growing interest on the part of consumers and small businesses to connect their
bank and credit union accounts to a third party app or platform. Data
aggregators such as Plaid, MX, Fiserv and others are needed to facilitate this
connection and the sharing of information, making it available not only through
P2P payment apps like Venmo or Zelle, but also through private label debit
cards like GasBuddy and Cumberland Farms, mortgage originators, and some
digital-only banks.
Visa’s acquisition underscores how important data
aggregation has become and reveals the direction it is heading. According to
Grotta, Visa’s decision to buy Plaid gives it “a jump start in what is becoming
the private sector approach to open banking in the United States.”
Consumers are
interested in using platforms that manage their finances
The results of the 2019 Expectations & Experiences: Consumer Payments survey from Fiserv indicated that consumers are interested in several financial management techniques that would require data aggregation.
In the survey, over 3,000 consumers ranked their interest
level in the following financial management techniques:
from different organizations using a single online location or app.
connected to their bank and credit card accounts.
would allow them to track spending in different budget categories across multiple
cards.
For all three options, over one-third of the respondents
were “Extremely Interested” or “Very Interested.” The generational difference
was noteworthy. In some cases, Generation Z consumers reported being four to five
times more interested in using these techniques than older adults.
Data aggregation
benefits consumers and businesses
Diegelman provided PaymentsJournal with a clear example of
data aggregation making the consumer experience smoother.
“Let’s say a consumer applies for a mortgage, and as part of
the qualification process they need to provide three months of bank statements,”
he said. Today, many mortgage originators are “providing the ability for the
borrower to input their banking account credentials into the originator’s loan
system, which then connects to an aggregator like Fiserv or Plaid.”
This means that consumers can avoid the headache of bringing
in paper bank statements or finding, scanning, and then emailing the statements
as PDFs. Instead, such an approach offloads the work to an aggregator that
provides the digital rendering of that statement directly into the mortgage
generator’s platform.
“It’s entirely possible that this makes the mortgage process
go much faster for the consumer. Speed and convenience are two dimensions data
aggregation can provide, and consumers value speed when it comes to their
finances,” added Diegelman.
Data aggregation helps businesses, too. If a business wants
to increase its customer base, and needs information to grow, using a data
aggregator is an obvious opportunity.
Beyond that, though, data aggregators have already built the
infrastructure needed to retrieve data from a banking or financial services
platform and, at the consumers’ request, send data to a permissioned
third-party. It would be extremely difficult, costly, and time-consuming for
individual companies to take on the burden of building out thousands of
connections themselves, when they can instead opt to take advantage of already
in-place data aggregation systems from aggregators with strong data security.
Consent and privacy are
hallmarks of a strong data aggregator
Strong data aggregators must live up to expectations of both
sides of a transaction. When consumers want to connect their bank transactions
to other apps, they do it for a specific purpose and expect their data to be
used for that purpose. They have privacy expectations regarding who sees their
transactions and how secure the transactions will be. Financial institutions,
banks, and credit card platforms on the other end of the transaction have
similar expectations.
Furthermore, even though a consumer provided their username
or password via an app or platform of their choosing, this does not mean that the
app has access to the credentials. Instead, the consumer’s credentials are often
held in the smaller realm of data aggregation providers who offer security as
part of their aggregation offering.
Data aggregation
enables faster payments
Data aggregation is already working to enable faster
payments. For example, if a consumer has to pay a monthly fee for their child’s
school lunch, but the school only accepts ACH payments, it can be tedious for
the parent to find their checkbook and routing information. Alternatively, a
school website with an aggregation component would allow parents to connect
their bank account using their bank account credentials.
Another strong example of data aggregation enabling faster
payments is the use of P2P payment platforms, such as Venmo or PayPal, instead
of writing a check or going to the ATM to withdraw cash. After linking a bank
account with the app, consumers can send money to others with the click of a
few buttons. The recipient can then immediately deposit the funds into their
account.
Grotta noted that data aggregation services may also be the
mechanism that launches real-time payments in the point-of-sale environment.
“It will certainly be an area to watch to see if new apps or payment devices
connection with aggregation start developing new POS payment capability outside
of the current networks being used today,” she said.
The future of data
aggregation
Looking forward, Diegelman identified two major developments
related to data aggregation that are already underway: the shift away from
screen scraping and the evolution of open banking.
The legacy method of data aggregation, known as screen
scraping or credential-based harvesting, relies on an aggregator writing
scripts and automating the same process a consumer would use to log into their
bank. Then, the data that has been requested gets pulled.
The legacy method of screen scraping may create a burden on
the technical infrastructure of banks, or may be a less-secure practice than
other options. Thus, Diegelman expects larger financial institutions to continue
to shift toward a form of direct connection such as OAuth, a token-based model
that provides a dimension of privacy and consent.
Secondly, open banking is maturing in the U.S. market at an
advancing rate that is expected to continue. With that in mind, Fiserv became a
board member Financial Data Exchange (FDX) in 2019. FDX brings together
payments industry leaders that want to “develop standards around account
aggregation with the goal of balancing consumers’ desire to utilize and share
their data for some purposes and banks’ prioritization around data security and
use cases.” Standardization by leaders in the industry will be needed to
successfully expand the open banking market.
Conclusion
Data aggregation is currently experiencing high growth in
the financial services world, and that growth won’t be slowing down anytime
soon.
With aggregation, the convenience and speed demanded by consumers
is made possible. Ultimately, maximizing the power of data through data
aggregation services benefits consumers, businesses, and financial institutions
alike.
The post How Consumers and Companies Benefit from Data Aggregation appeared first on PaymentsJournal.