The main problem of financial data aggregation

Launched at the end of 2007, is the first online consumer platform that aggregates financial data from many different services. In just two years, the service attracted 1.5 million users and was sold to the popular QuickBooks accounting software maker Intuit for $170 million.

Since then, some upstarts that provide similar services, such as Personal Capital and SigFig, have raised millions of dollars in venture capital, aiming at the investment end of the data aggregation range and providing healthy competition for human financial advisors.

At the same time, banks, brokers, and other financial institutions have been reluctant to provide financial applications with access to sensitive customer data. There is concern that customers and competitors will be able to see sensitive details that may undermine the bank’s competitive advantage.

In addition, data privacy issues surrounding the sharing of customer data with third-party financial technology companies and financial aggregators have also emerged. This article reviews the problems faced by banks, financial aggregators, and bank customers, as well as new organizations formed to help alleviate these data and privacy issues.

Key points

  • Due to privacy issues, banks are generally reluctant to share customer data with third-party financial technology companies and financial aggregators.
  • Banks have also been trying to distinguish data aggregators from hackers who attempt to commit fraud.
  • In 2018, a number of banks cooperated with data aggregators and financial technology companies to establish Financial Data Exchange (FDX).
  • FDX is a non-profit organization that aims to create a governance framework for sharing data and privacy.

Technical Difficulties

Many financial institutions do not provide direct links to data aggregation, which is not surprising given their privacy issues. As a result, the data aggregator was forced to automatically log in to the customer’s account and “crawl” the information. The process usually involves a computer program, accessing a bank website, logging in with customer credentials, and reading through codes to extract financial information, such as account balances.

Since aggregators and financial applications have millions of active users refreshing their accounts multiple times a day, the crawling process can sometimes overwhelm the bank’s servers. The peak demand may be so high that some banks have been struggling to cope with the system slowdown, which prevents their customers from doing banking.

Banks have also been trying to distinguish data aggregators from hackers who attempt to commit fraud. In these situations, if there are too many failed login attempts, consumers may experience account lockouts, which can damage customer relationships.

Consumers in the middle

Some large banks responded by prohibiting data aggregators from accessing their websites. In fact, this is done by telling the server to block the IP address of the data aggregator computer program. IP stands for Internet protocol Because it represents the format of data sent over the Internet. The IP address identifies the local address of a computer or network so that information can be sent electronically between devices.

If the bank blocks the IP address, it prevents the data aggregator from retrieving the information. Consumers using data aggregators (such as Mint) will see an error message. Bank customers will be frustrated by their inability to use financial applications to interact with the bank, which may cause them to switch banking service providers. In addition, many banks are using data aggregators to support their mobile platforms, which makes the situation even more complicated.

Consumers are caught in this battle between banking and financial applications. Without the cooperation of the bank, customers may see inaccurate data reported on their data aggregator, or may not be able to access their financial data at all. The data aggregator itself may also cause their online banking experience to slow down or account lockouts.

API-based solutions

The solution for banks and aggregators that has surfaced is an application programming interface (API) designed to handle data requests. By routing data aggregation requests to APIs instead of websites, traditional customers will not experience slowdowns due to the needs of data aggregators, and may not even need to disclose their login credentials. The data is also more reliable because it is not scrapped in an obsolete way.

In 2018, several banks worked with data aggregators and fintech companies to establish an organization aimed at creating a governance framework for sharing data and privacy. Financial Data Exchange (FDX) was established to protect customer data, but allows financial aggregators and fintech companies to access bank account information.

FDX is managed by a board of directors selected from financial institutions, fintech companies and data aggregators. FDX is a non-profit organization, and all members pay dues to fund its operations. FDX is an independent subsidiary of the Financial Services Information Sharing and Analysis Center (FS-ISAC). FS-ISAC is an industry association whose goal is to ensure the continuity of financial services infrastructure.

FDX has been solving financial data privacy issues, including the practice of third-party scraping. Consumers using financial aggregators will not be allowed to crawl, but will see their bank’s login screen, allowing them to choose the data to share with financial applications.

Although there will undoubtedly be problems in protecting consumers’ financial data in the future, FDX is a positive step in the right direction. Through cooperation between banks, fintech companies, and financial aggregators, FDX can help protect consumers from technical failures, while also preventing external hackers and fraud.

Bottom line

With the rise of services such as Mint and Personal Capital, data aggregators have become very popular in the past few years. Although consumer demand for these services is obvious, in the past, banks and other financial institutions have been hesitant to allow access to customer account data. However, with the formation of FDX, banks have a way to work with financial aggregators and fintech companies to protect customer data while satisfying customers.


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