How Consumers and Companies Benefit from Data Aggregation (2023)

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Data aggregation continues to gain importance in thefinancial services world. But what value does it offer?

PaymentsJournal sat down with Paul Diegelman, VP of digitalpayments and data aggregation at Fiserv, and Sarah Grotta, director of the Debitand Alternative Products Advisory Service at Mercator Advisory Group, to delvedeeper into the topic.

Defining data aggregation

Data aggregation, or what Diegelman referred to as “consumerpermission financial data aggregation,” can be broken down into two parts:consumer permission and financial data aggregation.

The consumerpermission component of the definition refers to the fact that in dataaggregation, consumers should consent to the process and provide the necessarycredentials for their bank. In return, consumers expect security, privacy,transparency in the use of their data, and some form of benefit.

The second component, financialdata aggregation, consists of the financial data that is pulled—oraggregated— from thousands of sources, including banks, credit unions, creditcard platforms, investments, mortgage companies and other payment providers.Aggregators like Fiserv have built what Diegelman referred to as an “underlyingset of pipes,” allowing these parties to connect together in a faster processand deliver something of value to consumers.

Visa’s $5.3 billionPlaid acquisition

Visa’s January 2020 announcement of its $5.3 billionacquisition of third party data aggregator Plaid caused major players in thepayments world to focus more of their attention on data aggregation.

Though open banking is not mandated in the U.S., there is agrowing interest on the part of consumers and small businesses to connect theirbank and credit union accounts to a third party app or platform. Dataaggregators such as Plaid, MX, Fiserv and others are needed to facilitate thisconnection and the sharing of information, making it available not only throughP2P payment apps like Venmo or Zelle, but also through private label debitcards like GasBuddy and Cumberland Farms, mortgage originators, and somedigital-only banks.

Visa’s acquisition underscores how important dataaggregation has become and reveals the direction it is heading. According toGrotta, Visa’s decision to buy Plaid gives it “a jump start in what is becomingthe private sector approach to open banking in the United States.”

Consumers areinterested in using platforms that manage their finances

The results of the 2019 Expectations & Experiences: Consumer Payments survey from Fiserv indicated that consumers are interested in several financial management techniques that would require data aggregation.

In the survey, over 3,000 consumers ranked their interestlevel in the following financial management techniques:

1. The ability to manage their financial accountsfrom different organizations using a single online location or app.
2. A mobile money management/budget app that isconnected to their bank and credit card accounts.
3. Aggregated credit card usage statements thatwould allow them to track spending in different budget categories across multiplecards.

For all three options, over one-third of the respondentswere “Extremely Interested” or “Very Interested.” The generational differencewas noteworthy. In some cases, Generation Z consumers reported being four to fivetimes more interested in using these techniques than older adults.

Data aggregationbenefits consumers and businesses

Diegelman provided PaymentsJournal with a clear example ofdata aggregation making the consumer experience smoother.

“Let’s say a consumer applies for a mortgage, and as part ofthe qualification process they need to provide three months of bank statements,”he said. Today, many mortgage originators are “providing the ability for theborrower to input their banking account credentials into the originator’s loansystem, which then connects to an aggregator like Fiserv or Plaid.”

This means that consumers can avoid the headache of bringingin paper bank statements or finding, scanning, and then emailing the statementsas PDFs. Instead, such an approach offloads the work to an aggregator thatprovides the digital rendering of that statement directly into the mortgagegenerator’s platform.

“It’s entirely possible that this makes the mortgage processgo much faster for the consumer. Speed and convenience are two dimensions dataaggregation can provide, and consumers value speed when it comes to theirfinances,” added Diegelman.

Data aggregation helps businesses, too. If a business wantsto increase its customer base, and needs information to grow, using a dataaggregator is an obvious opportunity.

Beyond that, though, data aggregators have already built theinfrastructure needed to retrieve data from a banking or financial servicesplatform and, at the consumers’ request, send data to a permissionedthird-party. It would be extremely difficult, costly, and time-consuming forindividual companies to take on the burden of building out thousands ofconnections themselves, when they can instead opt to take advantage of alreadyin-place data aggregation systems from aggregators with strong data security.

Consent and privacy arehallmarks of a strong data aggregator

Strong data aggregators must live up to expectations of bothsides of a transaction. When consumers want to connect their bank transactionsto other apps, they do it for a specific purpose and expect their data to beused for that purpose. They have privacy expectations regarding who sees theirtransactions and how secure the transactions will be. Financial institutions,banks, and credit card platforms on the other end of the transaction havesimilar expectations.

Furthermore, even though a consumer provided their usernameor password via an app or platform of their choosing, this does not mean that theapp has access to the credentials. Instead, the consumer’s credentials are oftenheld in the smaller realm of data aggregation providers who offer security aspart of their aggregation offering.

Data aggregationenables faster payments

Data aggregation is already working to enable fasterpayments. For example, if a consumer has to pay a monthly fee for their child’sschool lunch, but the school only accepts ACH payments, it can be tedious forthe parent to find their checkbook and routing information. Alternatively, aschool website with an aggregation component would allow parents to connecttheir bank account using their bank account credentials.

Another strong example of data aggregation enabling fasterpayments is the use of P2P payment platforms, such as Venmo or PayPal, insteadof writing a check or going to the ATM to withdraw cash. After linking a bankaccount with the app, consumers can send money to others with the click of afew buttons. The recipient can then immediately deposit the funds into theiraccount.

Grotta noted that data aggregation services may also be themechanism that launches real-time payments in the point-of-sale environment.“It will certainly be an area to watch to see if new apps or payment devicesconnection with aggregation start developing new POS payment capability outsideof the current networks being used today,” she said.

The future of dataaggregation

Looking forward, Diegelman identified two major developmentsrelated to data aggregation that are already underway: the shift away fromscreen scraping and the evolution of open banking.

The legacy method of data aggregation, known as screenscraping or credential-based harvesting, relies on an aggregator writingscripts and automating the same process a consumer would use to log into theirbank. Then, the data that has been requested gets pulled.

The legacy method of screen scraping may create a burden onthe technical infrastructure of banks, or may be a less-secure practice thanother options. Thus, Diegelman expects larger financial institutions to continueto shift toward a form of direct connection such as OAuth, a token-based modelthat provides a dimension of privacy and consent.

Secondly, open banking is maturing in the U.S. market at anadvancing rate that is expected to continue. With that in mind, Fiserv became aboard member Financial Data Exchange (FDX) in 2019. FDX brings togetherpayments industry leaders that want to “develop standards around accountaggregation with the goal of balancing consumers’ desire to utilize and sharetheir data for some purposes and banks’ prioritization around data security anduse cases.” Standardization by leaders in the industry will be needed tosuccessfully expand the open banking market.

Conclusion

Data aggregation is currently experiencing high growth inthe financial services world, and that growth won’t be slowing down anytimesoon.

With aggregation, the convenience and speed demanded by consumersis made possible. Ultimately, maximizing the power of data through dataaggregation services benefits consumers, businesses, and financial institutionsalike.