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Online Banking: Financial Firms Giving Aggregation A Big Hug
American Banker Thursday, May 16, 2002
By Priya Malhotra
The financial services industry, which three years ago declared war on account aggregation, declared peace this week.
That may be an exaggeration, but to hear Catherine Allen tell it, it may be close to true. "Aggregation services are going to be the way that most of us access our data five years from now," said Ms. Allen, the chief executive officer of BITS, the technology arm of the Financial Services Roundtable, at a press briefing in New York Tuesday about the group's priorities. "We've got to have the infrastructure in place."
To be sure, the changes have been evolutionary; BITS published its first guidelines for aggregators as long ago as last spring.
But a mere two years ago account aggregation was practically synonymous with piracy, since the main method of gathering account information was to lift it without permission from other companies' Web sites. Today, while screen scraping is still prevalent, the hysteria about it has given way to cooperation among companies on how data will be exchanged and to an industrywide effort to create standards for that exchange.
Nor has it hurt the progress to peace that only one major third-party aggregator remains.
Yodlee Inc., having acquired its chief competitor and overwhelmed the others, now counts 120 clients, including some that have taken equity positions, such as J.P. Morgan Chase & Co., Bank of America Corp., Merrill Lynch & Co., and Morgan Stanley Dean Witter & Co. Though Yodlee was viewed as a potential disintermediator when it began offering aggregation on its own Web site in September 1999, it has come to be viewed by banks as a trusted partner.
Its experience building a customer base and efforts to move away from screen scraping are beginning to reveal the new face of aggregation. Anil Arora, the chief executive officer of Redwood City, Calif.-based Yodlee, said that the number of Yodlee users has grown about threefold in the last year, to 2.7 million worldwide.
Yodlee obtains information from about 6,200 Web sites, Mr. Arora said, and now scrapes only 65% of the data, compared with 100% when the service was first launched. He predicted that its percentage of data from screen scraping will probably decline to 30% in the next few years, as Yodlee sets up more cooperative relationships with financial services companies.
Mr. Arora said that Yodlee's product and technology help banks increase customer retention and loyalty, reduce their marketing costs, and increase their wallet share. "Banks are going to see returns," he said. "The ROI is very powerful."
Ms. Allen of BITS said that the problems with screen scraping are not just ethical. The data that are grabbed can be inaccurate or out-of-date. Pixels can not be picked up properly. And while Yodlee "has been terrific about this," other aggregators store customer account numbers and PINs in less-than-secure ways.
Ms. Allen called Yodlee "an excellent example of how a vendor has responded to the needs of the industry and has done the right thing." She added, "They have been a leader and they have gotten other vendors to get involved in BITS activities."
Yodlee and other companies are reaching bilateral agreements on data feeds, and BITS is trying to set an interoperable standard for how the feeds are sent.
"What needs to happen is institution-to-institution communication," so that, for example, Citibank knows that J.P. Morgan Chase is sending the right information and has the authorization to do it, Ms. Allen said. "The point is that we have to have the infrastructure for it when it happens."
Mr. Arora and Ms. Allen of BITS both said that screen scraping will be with us for the foreseeable future, but that the percentage of data obtained through it will continue to decline as companies forge data-exchange agreements. With banks getting more involved in account aggregation, Mr. Arora said that "more and more banks are now going to server-to-server, with direct data feeds into Yodlee's network."
Ms. Allen said that BITS has been talking to the five largest Canadian banks about becoming members, and that those banks told her that they saw no justification for offering aggregation, citing competitive concerns. "I said, 'We have no choice, you have to do it,' " she recalled.
Mr. Arora, in an interview last week, made a similar point. Customers are demanding it, and banks are seeing that this is a win-win situation," he said.
Yawar Shah, the executive vice president of e-business at J.P. Morgan Chase, said that working with Yodlee had been a "good experience." J.P. Morgan Chase packages Yodlee with its online offerings, he said, adding that it is a Chase-branded site powered by Yodlee.
"The challenge is how do we firms make money with aggregation," Mr. Shah said. "Our clients certainly want it; the growth in usage has been quite strong. What we're doing is taking it to the next stage, testing pilots for our ability to cross-sell."
So far, he said, the efforts seem to be paying off. "We are deepening the relationship with our clients with the use of aggregation," Mr. Shah said. "We're looking to provide them good advice. Part of this process is trying to see if this creates customer loyalty and retention."
Expectations for aggregation have been tempered somewhat over the last two years, and while Ms. Allen predicts that everyone will be doing it within five years, other industry estimates are less rosy. "We've gone from e-euphoria, where aggregation was seen as the Holy Grail, to looking at it as another important online offering that needs to further profitability objectives," Mr. Shah said.
The harmonious relationship between aggregation companies and financial institutions stands in contrast to the situation in the winter of 1999, when financial institutions rallied against screen scraping and First Union Corp. (now Wachovia Corp.), sued PayTrust Inc., an electronic bill payment and presentment firm, over its use of screen scraping.
Ariana Michele-Moore, an analyst with Celent Communications in Boston, said that financial institutions changed their tune when they began viewing aggregation as a customer retention and customer acquisition tool. "It a great way for customers to enhance their online experience," she said.
Yodlee has the "lion's share" of the market, and the biggest clients, she said. In December 2000, Yodlee acquired its main competitor, VerticalOne, making it the dominant player in the market.
On May 9, Yodlee announced a new service that permits its clients - which are primarily financial institutions and Internet portals - to host their account aggregation on their own premises instead of at Yodlee's. Mr. Arora said he expects only a small percentage of clients to use this option, because it requires a great deal of technology infrastructure and is "complex operationally."
Yodlee delivers its service in three ways, he explained. The most complete package is a total outsourcing arrangement in which the aggregation service and site is fully hosted, "soup to nuts," by Yodlee. Between 60% and 70% of Yodlee clients use this method, he said.
The second option is for the client to buy a software developer kit and data feed from Yodlee, but take care of the front end itself. The third is the new on-premises hosting option.
"We are agnostic as to the delivery system," Mr. Arora said. "We want to provide our clients with the ultimate flexibility."
He argued that it is not enough just to view accounts in one place. In the future, he said, aggregation will have to go beyond what it is today by offering tools to manipulate information and make decisions.
"The power of aggregation is unleashed when you take this personalized content and integrate into a variety of applications like personal financial management, bill payment, advisor solutions and data intelligence," Mr. Arora said.
One of the first Yodlee customers to move in this direction is SunGard Data Systems, which will use account aggregation to provide fuller information to customers of its wealth management software, Mr. Arora said.
Mr. Arora would not say whether he sees Yodlee staying private, going public, or merging with another entity in the long run, saying that those choices would be made by the company's investors, which are primarily large financial institutions.
"These decisions are not necessarily made by company management, but are shareholder decisions," he said. "Our role is to grow the company and create value and shareholders of the company will decide the capital structure of the company."
Yodlee derives its revenue from license and user fees, which are paid by financial institutions and Web portals. Mr. Arora said Yodlee is "starting to generate a very significant level of revenue" and is "very close" to profitability.
"With the fall of the dot-com economy, financial institutions have had to be more conservative with their IT spending and investing in products where they can justify a positive return on investment," said Ms. Moore of Celent. "Yodlee had to be aware of this, and position themselves and develop a solution that could meet the needs of the financial industry and they are taking steps in the right direction." |
