Account aggregation

Northwestern Financial Review, Sep 1, 2001 by Dullum, Justin

Is it the `killer app' or just one more cost of doing business?

After an intense period of expanding the technological front lines, the economy has paused to take a deep breath. No longer is every other television commercial advertising a dot-com. The sale of personal computers has dropped. High-speed Internet access has yet to reach everywhere. The physical logistics of revolutionizing the way people get information turned out to be complicated. For banks not yet offering online banking, this is a time to catch up with the first generation of Internet banking technology before the second generation-- being led by account aggregation-becomes the benchmark.

Aggregation technology, sometimes referred to as "screen scraping," makes it possible for a Web site to consolidate a customer's account balances, securities holdings, mileage accounts and other information from various sources into a single location. Although aggregation has yet to find its way onto Web sites hosted by community banks, experts are saying aggregation is to Web sites what Web sites were to banks five years ago - the immediate benefits may be small to the bank, but the cost of not implementing the new technology could be significant.

"Aggregation is something a bank should be looking at and putting into its planning," said Steve Schutze, director of e-strategy, American Bankers Association. "There is a certain segment of customers that wants account aggregation. If they don't get if from their bank, they'll get it from someplace else."

Aggregation's money-making capabilities are limited, admitted Schutze. He noted, however, that the industry has implemented other services that initially cost the bank money but eventually created benefits-such as free checking. "Right now, it doesn't appear the service is generating income, but aggregation will lead to the front end of many things that customers are demanding more and more of-like electronic bill pay. These are the services that put a financial institution right in the middle of a customer's financial life," Schutze said.

Like Web sites, the major concern many small- to mid-size institutions harbor about aggregation is initial installation and subsequent maintenance cost. Schutze said the cost of aggregation should become manageable. "I know many Web site providers that offer a turn-key service for smaller banks," said Schutze. "As aggregation becomes more the norm, this service is likely to be included in these packages. That's the way for small banks to go."

One man with many reasons to believe account aggregation is affordable, necessary and fraught with potential is Dinesh Sheth, president and CEO of uMonitor, a Tennessee-based company that creates aggregation technology. "I don't think it costs that much," said Sheth. "The typical community bank will pay around $1,000 a month for the service." A bank should ask itself how much it spends on a half-page ad in the local newspaper, Sheth said. "That costs a good chunk of money. For the same amount or less, they could be offering aggregation to their customers. And from the benefit side, they are providing the customer with something very useful that will bring them back to their site again and again."

Aggregation has been available for free, on the web, from many sources ranging from financial institutions to Internet portals, for roughly a year. Schutze said this means people will have unlimited access to the service whether their bank provides it or not. Sheth agreed. "Because of its wide availability, it's impossible for a bank to charge for the service. But a certain segment of customers will demand it. Eventually, aggregation will just be part of the cost of doing business," Sheth said.

Market Studies

Several studies indicate few people are using aggregation services, but many people have an interest in it. One such study, conducted by Raddon Financial Group, Oakbrook Terrace, Ill., shows only 3 percent of all households now use an account aggregation service but 19 percent are interested in learning more about it. Sixtyone percent of the households that currently use the service or are interested in it would let their account consolidator analyze their aggregated personal financial information to make recommendations based upon their needs. This is a key point, Sheth said.

"Banks should be looking at revenue from up-sale and cross-sale," Sheth said. "Aggregation gives them a tremendous opportunity to better know their customers because they are doing everything with them."

"Community banks are already known for having special relationships with their customers," said Gabrielle D'Amore, Digital Horizons, Calabasas, Calif, an Internet banking resource and service provider. "Because of that, I think community banks are in the best position to utilize aggregation. It will enhance the already unique relationship smaller banks are in a position to build. A bank will know even more about its customers and be able to offer better service."

There is skepticism, however, about the usefulness of aggregation to community banks. RSM McGladrey, St.Paul, Minn., does an annual study of Internet banking. Of 733 banks offering Web banking interviewed this year, only 30 percent stated they have a budget specifically for their Web site. Virtually none of them could justify the cost of the site. Most banks simply point to customer retention as a means of justifying the expense. Dean Schumann, RSM McGladrey, said of that same group, 37 percent said they would be adding account aggregation within the next 18 months in an effort to gain further retention.