As the term ‘aggregation’ suggests, financial aggregation means collecting all types of financial information in one place. Account integration or financial data aggregation compiles data from different accounts into a single place. The data compiled can relate to bank accounts – as in the example cited in the introduction – but also to credit card accounts, investment accounts, or any other financial information.
Account information services are the type of financial aggregation that you will find in personal finance software. Payment initiation services requirte a different type of banking license and are mainly offered by FinTech player and retail banks. Obviously, the latter type of financial aggregation offers more convenience to the customer.
Aggregation of data is not restricted to the financial sector of course. I, in other applications too, data are collected and aggregated to make life easier on the consumer. Just think of HR services applications, where information from different applications is pulled in to deliver employees a complete overview of their benefits.
The advantages of financial aggregation for the consumer are clear, but for a bank too, there are advantages, turning financial aggregation into a potential win-win situation in financial services.
Advantages of financial aggregation for the customer
The main benefit of financial aggregation for consumers is the ability to get a clear overview of their financial situation. By combining accurate real-time information on the balance of their current account and what credit card bills or loan payments are coming, the consumer knows exactly what amount remains until the next paycheck. Knowing what payments are due, the consumer can ensure there will be no overdraft on an account, leading to expensive interest payments. Consumers that hold accounts at multiple banks, can easily move money from one account to another to keep all balances positive. At the same time, they can analyze their spending patterns on the different accounts.
Compiling this information manually, consulting different accounts at different banks and credit card companies is feasible, of course, but will take a lot of time. You will need to open different applications, enter your credentials for each application and make calculations. You could say that financial aggregation is like a clean desk policy: there’s no pile of papers that you have to work through to get the right info.
Fortunately, the consumer is king, also in financial aggregation: the customer can control/(or: dictate) what information is shared from one bank to another and is in charge of giving or revoking consent.
Advantages of financial aggregation for the bank
Retail banks also see the advantage of offering financial aggregation to the customer. Banks are forever improving their mobile apps to improve customer experience. That’s why retail banks are building out digital ecosystems of financial and non-financial services: the more time a consumer spends in the banking app, the higher their fidelity to the bank. By offering customers convenience and a wide range of services, banks are turning themselves into a one-stop-shop at defining moments in their customers’ lives.
Depending on the type of information customers are sharing, this financial aggregation can be integrated into the big data strategy of a retail bank. Banks can detect customer spending patterns and can offer advice to customers on where to find better deals for some of their purchases. It goes without saying that banks need to tread carefully here and respect the privacy of their customers.
Financial aggregation is considered one of the first, very visible realizations of the principle of open banking, as it has been translated into the European PSD2 guidelines. PSD2 builds the financial connection between customers and financial institutions and aims to make these connections secure and easy.
Without PSD2 and open banking, financial aggregation would be a non-starter. In most cases, the financial data are shared through standard APIs.
Identity and Access Management (IAM) is a necessary component when building the connections between customers, their bank and the third-party providers the bank interacts with. As explained above, these connections are made through APIs. IAM is there to protect the data of the customer and ensure safe connections between the different apps that a customer accesses.
TrustBuilder has a wealth of experience in the financial services industry. Many banks use our flagship product, TrustBuilder Identity Hub, to combine airtight security with a great customer experience. That positions TrustBuilder Identity Hub as the best choice when implementing financial aggregation.
TrustBuilder provides optimal API security for financial aggregation
As the connections between banks and third parties are built as APIs, there is an increasing/(or: a growing) demand to secure these APIs. The ability to control API access is the cornerstone of effective API and microservice security, and key to establishing trust in financial aggregation. Contrary to other IAM systems that only secure the edge of an API ecosystem, TrustBuilder Identity Hub also takes care of the security between the different apps in the financial service system. TrustBuilder Identity Hub addresses security of these APIs on an individual level, authenticating identity and user privileges at each hop.