In this Q&A, we interview Vice President of International Markets at Envestnet | Yodlee, Jason O’Shaughnessy, who shares with us his thoughts on the current state of account aggregation, the challenges in developing the best financial services applications and why aggregation opens the door to a more user-centric banking experience, based on understanding what customers really want.
What are the key benefits of account aggregation for the user and for the bank?
The key benefit for the user is the ability to see all of their financial relationships through a single interface: For example, this could include a user’s credit card with American Express, bank account with Barclays, savings account with ING, and investments account with another provider. The ability to see a holistic view of their finances empowers consumers to manage and track their spending through a single login and ultimately help them make better informed decisions and take the necessary actions to improve their financial well-being.
From a bank´s perspective, it provides their customers with a value-added service. More importantly, banks build stronger relationships with their customer, reducing the need to move away, instead will always come back to their primary bank to view / manage their entire financial life. The biggest benefit for banks will be that through aggregation, they will be able to know much more about the customer in order to offer better personalized products.
The role of account aggregation has obviously evolved over the last few years. Would you say that there have been several waves in this evolution?
Account aggregation has changed significantly. In the beginning, it was simply about the ability for a consumer to view all your accounts in one place and was marketed as a tool to have one single login to manage your financial life. In most cases, it was just about seeing your accounts and nothing else. The second wave was when mint.com launched, this showed our consumers were happy to go to an unknown entity and link their accounts rather than a known bank brand. Banks also moved to a more personalized PFM (as in personal financial management) - letting you not only see all your financial relationships, but greater insights and forecasts about your financial life across all your accounts.
Where data aggregation has changed most substantially is that consumers want to have access to their accounts and are more open to sharing their data as well. We see permissioned financial data sharing being used for lending and for online accounting for small businesses to help with their cash-flow management, for example. The big difference here is that now data aggregation is becoming a core component to making many different types of applications work efficiently.
There is still a lot of talk about privacy. There is still concern that banks use it for their benefit and not for the consumer. How would you comment on that?
I think if you are a responsible bank, you will implement aggregation in the right way. It is always key to remember that aggregation is not going to work without the user permission and banks will never have access to use the data unless the consumer provides them permission to do so. If you look at Yodlee as an example, it´s not Yodlee using account information - it´s the customer accessing the Yodlee platform to view their online accounts. Every responsible bank must highlight privacy terms and conditions clearly.
Let´s move on to the topic of the Revised Payment Service Directive (PSD2). It will be implemented quite soon. Do you think banks are prepared?
Some are and some aren’t. My view is a number of banks won't make the January 2018 deadline. I think that PSD2 has done a great job for account aggregation. For the market in Europe it has been fantastic. It has removed this idea that the data belongs to the bank. Secondly, because of this, many banks are now exploring how aggregation platforms can be used to assist in the new world of data openness and access.
Source: Evry white-paper: PSD2 - Strategic Opportunities beyond compliance
Do banks think that PSD2 is a threat? Why are they not getting ready as quickly as they should?
I think banks feel the threat of what PSD2 truly means and still question whether they will just become a platform for other solution providers. They are also trying to understand how to generate revenue from aggregation. I think ultimately the banks that are going to win, are the ones realizing that opening up their data will enable them to continue to grow and successfully innovate in order to stay competitive. Those that don’t could lose their customers to other banks who do open up their data.
Apart from PSD2 in Europe, are there any equivalents in other parts of the world?
Open banking just became a reality for Australia where banks are being asked to open up access to consumer data by July 2018, which will give consumers much greater choice when seeking to switch banks.
Asia might also be following the European lead, with Singapore moving towards pushing the boundaries of open banking. It´s worth noting that US Dodd-Frank Wall Street reform was enacted in 2010 as a result of financial crisis in 2008, but no formal actions have been taken to offer data access through open APIs. The key message here is that as all the markets prepare new legislations implementing PSD2, the open banking landscape continues to evolve.
What do you think is the current state of PFM in digital banking and what is the future?
There are a couple of points to make here. I think historically PFM got off to a false start simply because banks that implemented it have done one of two things: they either put their PFM solution within their online banking without an aggregation option, so it's not really going to help me as a user who has multiple banking relationships. Secondly, the banks that deployed PFM often only made the service available via a tab within online banking. This lowered the adoption rates.
The successful PFMs nudge consumers in the right direction, giving insightful information that help them understand our finances – i.e. will I have enough money to go out on Friday night? Will I have enough money to pay my bills next week? This can be compared to a fitness app - if I register for this app and log-in at the end of the month and it tells me I am no fitter, I will probably never use it again. This can be said to be the same as a PFM app where at the end of the month I still don’t have any spare cash to save or invest! The right solution should help lead us to the right decisions.
Why are some banks not there yet with PFM that works?
They look at PFM and think: “This is expensive and a lot of work and we don’t know how to generate money out of it.” They often don't see the revenue opportunities that PFM offers, and even if they do, it is seen as a big risk, when in reality, if done correctly, the monetizing options that PFM can open up offer interesting revenue streams for banks.
Jason O´Shaughnessy is Senior Vice President of International Markets at Envestnet | Yodlee. Jason has successfully built a strong International presence for Envestnet | Yodlee and brings over a decade of experience pioneering financial technology innovation.