Financial Aggregation is a win-win for both banks and customers
Do you find it strange that you can consult the balance of your account via a competing bank in your standard banking app? Open banking and financial aggregation or bank account aggregation are the terms to remember, as this is just the beginning of how financial aggregation and digital banking ecosystems are set to change the face of banking.
- What financial aggregation means
- What types of financial aggregation are there?
- What are the advantages of financial aggregation for the bank and the consumer
- What the role of open banking is in financial aggregation
- How Identity and Access Management plays a key role in enabling financial aggregation
- Why TrustBuilder Identity Hub is your best choice in securing financial aggregation
What is financial aggregation?
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.
Not only will you find the principle of financial aggregation in your bank accounts, you may also encounter it in the software you are using to manage your personal finance or in other online tools.
What types of financial aggregation are there?
There are two main types of financial aggregation:
- Account information services: this is the ‘basic’ form of financial aggregation and allows the customer to get all the information in one place: account balance, credit cards, pension plans, morgagesmortgages, etc.
- Payment initiation services go a lot further and allows the consumer to also make payments from accounts at different banks, from their preferred financial app.
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.
What are the advantages of financial aggregation?
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.
Check out our long read ‘7 reasons why digital ecosystems are the future of retail banking’
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.
What is the role of open banking in financial aggregation?
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.
Why is TrustBuilder.io your best choice in securing financial aggregation?
TrustBuilder has a wealth of experience in the financial services industry. Many banks use our flagship product, TrustBuilder.io, to combine airtight security with a great customer experience. That positions TrustBuilder.io 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 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.io also takes care of the security between the different apps in the financial service system. TrustBuilder.io addresses security of these APIs on an individual level, authenticating identity and user privileges at each hop.
Read our free guide to API security
TrustBuilder ABAC and Workflow Engine
To ensure the security of the connection from one bank to another bank using APIs, TrustBuilder uses attributes to elevate the security. Our Access-based Access Control (ABAC) system allows the creation of attributes of any data field within the source and target databases. With the help of our visual workflow engine, rules can be set up to fetch specific attributes (data) at the time required, without the need to store this data in the target app.
This allows a financial aggregator to retrieve the complete data of financial attributes from the source financial institution. Once consumers have categorized their financial transactions at the source bank, these values can be transferred and mapped to the values of the financial aggregator, making it even easier for the consumer to choose the best financial app for their needs with a minimum amount of work. Fetching these attributes can be done at the exact moment that the user is requesting it in the financial app, so the data will always be accurate. It also eliminates the need to store this data at the financial aggregator, which makes GDPR compliancy easier.
TrustBuilder shortens time to market for financial aggregation
TrustBuilder.io comes with a large set of predefined connections to Identity Providers and Service Providers and supports many different authentication methods and protocols. This makes it easy for an IT department to add new services quickly. A graphical user interface assists system administrators in configuring the customer journey and deploying the new service faster than the competition.
Download our free whitepaper ‘Building Trust for Digital Ecosystems’
