Account aggregation is maturing, but is it a solution in search of a problem?
Account aggregation, which burst on the scene amid much hoopla, is showing signs of maturity.
Consumers in the U.S., and increasingly around the world, have ready access to the technology, which helps manage multiple online relationships, presents consolidated financial information across banking relationships, and generates customized advice and special offers. Sponsors of aggregation services, including banks, brokerages and Internet portals, are vying to be the center of their customers' financial lives.
High-net worth individuals-plus their financial advisors, money managers, accountants, lawyers and bankers-have the most to gain from the aggregation boom. "For wealthy individuals, the ability to look at their accounts under one roof is of more value because the decisions that they can make have a greater impact on their economics," said Navtej S. Nandra, principal at Cambridge Group.
Yet even as aggregation becomes ubiquitous, early claims that it would be a catalyst to mass adoption of online banking have proven to be exaggerated. "Financial institutions expected to get a lot more out of account aggregation than they have," said Nandra. "Account aggregation does not seem to be a key motivator in the customer's purchase decision."
Still, by adding account aggregation to an online banking platform, banks can inoculate their most tech-savvy customers against being lured away by larger banks and portals. West Suburban Bank, a $1.4 billion, 31-branch bank based in Bloomingdale, Ill., has signed up 135 customers for its account aggregation service, powered by uMonitor, a Germantown, Tenn. software company.
Account aggregation was only a small part of West Suburban's online strategy. Early last year, the bank implemented an online portal system from FundsXpress.Getting onto the FundsXpress portal made a big difference. "We were up and running with the online banking fairly quickly," said David Mulkerin, West Suburban Bank's compliance, privacy and database marketing officer. Today, West Suburban has close to 10 percent of its customers using the online banking product.
The account aggregation service is also open to people who don't yet have accounts at the bank, allowing West Suburban to open a dialogue with potential new customers while cementing relationships with existing ones. Customers have been receptive to the bank-sponsored service. "I thought people might have issues with giving over all their passwords," said Mulkerin. "But the service has been very well-received."
However, when moving up the wealth pyramid, banks face stiff competition from brokerages. "In the banks, there's a big opportunity in the bank securities departments and up into the private banking world," said Shaw Lively, an analyst at IDC. "Brokers are in front, but banks are set up to profit from it if they move ahead and do it before the brokers go too far down the road."
Custodian banks have an important role in account aggregation, as they already provide services-both directly and indirectly-to high-net worth clients. State Street Bank recently took an ownership stake in ByAllAccounts, and will offer account aggregation to its investment management clients, complementing its custody, accounting and other back-office services. (See Executive Q&A, page 42.)
"Wealth management firms need to get rid of the operations side of things and do a better job running their clients' money, and do a better job of managing the relationships that they have with their clients," said Pat Gardner, president and CEO of Boston-based ByAllAccounts.
Custodians themselves aren't the only ones getting into the aggregation game. Other companies are providing value-added services for wealth managers by plugging into custodian banks' data feeds.
For example, WealthTouch, a Denver-based investment services firm, examines each piece of information before sending it along to its clients-wealth managers serving those with over $25 million in assets. "Every piece of data that leaves our shop has been looked at, and has been reconciled, and has been validated by a professional," said Rick Higgins, CEO of WealthTouch. "Our focus is accuracy."
By contrast, State Street's implementation of ByAllAccounts will provide "as-is" data to investment manager clients. "If the financial institution is reporting it at a certain value and at a certain price, that's exactly the way that ByAllAccounts will report it through its application," said Anne Tangen, senior vice president and head of State Street's Wealth Manager Services group. "We don't try to decide whether it's the right price or that it's the right financial holding; we pass that right along."
Data accuracy is especially important in thinly-traded markets such as municipal bonds. "We see a tremendous number of mistakes that the banks are making," said Higgins. "We're seeing trades misplaced, we're seeing money not being applied to the correct accounts."
WealthTouch collects most of its information electronically through partnerships with ByAllAccounts for retail accounts and DataPIPE (from New York-based Electra Information Systems) for institutional accounts.The personal touch extends to aggregation of illiquid assets, such as venture capital, alternative investments, hedge funds and real estate.