In the modern world, we’re used to having access to all of our information at all times, thanks to the nifty devices we have in our pockets or the laptops we can carry almost anywhere. That’s a significant amount of data accessible on-demand. While many consumers aren’t aware of the process it takes to compile this information and make it accessible wherever whenever, professionals in sectors like finance can use it to their advantage, so it’s crucial for them to understand.
How does financial data aggregation work? Keep reading to learn about data aggregation and its benefits and downsides.
What Is Data Aggregation?
In layman’s terms, financial data aggregation is a compilation of your financial information presented in one easily accessible place. It’s how you open up your bank’s website, enter your login information and see your checking and savings account information right in front of you. In other industries, data aggregation accomplishes the same goal — airlines use data aggregation to present travelers with information about which flights are available on specific days and times and at what price points.
This presentation of data is possible through software identifying key information and pulling it from different locations to assemble it together. As online and mobile banking continues to be the norm, data aggregation is becoming more popular than ever for financial institutions. A somewhat common way to collect and distribute data is called screen scraping, which differs from data aggregation.
How Screen Scraping Works
When a program or individual copies code or information from one place and uses it somewhere else, they’re screen scraping. This process creates a replica of the information it scrapes and uses it in another location, usually using it in an automated process. The data collected from screen scraping is usually raw text or identifying information from within a site or application.
An example would be an application that has access to login information, like a username and password. The application can then store these credentials and use it repeatedly to gain access on behalf of the user. This application can then scrape financial data such as account balances, transactions, and other information, because it is technically logged in as the user.
Many financial applications are connected through aggregator technology that stores credentials and logs in on an ongoing basis to scrape the most current information, so that consumers can access their data through those applications at any time.
While this may be convenient, one of the main problems with screen scraping is an array of security concerns. And for the financial institutions themselves, screen scraping technology could put a great strain on their network, increasing costs and potential downtime.
Many organizations use screen scraping ethically; as noted above, in the financial sector, banks and other institutions can use screen scraping to compile data from their users’ accounts in one place. For example, a finance app that displays your bank account information, loans, recurring payments and more could use screen scraping to make your financial information accessible and integrated as you expect it to be.
But even with the highest security standards in place, users must place a high level of trust in the application they’re using, as they’re sharing their private information when they login to their bank and connect their accounts. They likely don’t realize they are granting permission for the aggregator to store and use those credentials to access their information as needed. Since the majority of the industry operates this way, the alternative is novel: data aggregation that accounts for and protects the user’s information and integrates with other platforms without scraping data. By tokenizing, anonymizing, and encrypting individual data without storing or selling user information, data aggregation can be safe and convenient. When financial institutions provide connectivity through an application programming interface (API), consumers can place complete trust in said organizations.
The Benefits of Data Aggregation
In the financial world, data aggregation has the potential to benefit both banking institutions and their consumer base. If properly used, the benefits of aggregation can lead to a significant increase in customer loyalty and in the number of consumers the bank attracts. Here are some advantages of data aggregation as a whole.
The Consumer’s Role
More consumers are looking for data aggregation than you may think. On average, about 46% of consumers are interested in apps or platforms that will assist them with managing their finances, which means the financial data needs to be accessible in those apps and platforms. In other words, almost half of consumers are likely looking for financial institutions that have shifted towards data aggregation. As the trend for third-party finance apps continues to increase, you can expect that percentage to rise, as well.
The benefits for customers are evident. All consumer data is located in one place, which takes the burden of locating their information off of their shoulders. Using data aggregation also saves consumers time when it comes to accessing their information, as it’s all organized in a central location. As a result, convenience is one of the most significant qualities that factor into overall customer satisfaction.
Keeping Consumers’ Information Secure
When it comes to the privacy of consumers’ information, making sure their financial information is secure and protected is incredibly important. Anyone who uses banking apps and other financial platforms may not mind the app using their data to conveniently send money to a friend, but they certainly don’t want outside sources to access that data.
Fortunately, aggregation can protect consumers from their information being compromised by keeping the third-party app from having direct access to the consumers’ information. Instead, a data aggregation provider that tokenizes and stores this information and only uses it when the consumer consents provides an added layer of security. This approach protects the consumer’s privacy, keeping their information secure from those who may try to hack into these platforms to access this sensitive information.
Quicker Transactions and Happier Consumers
Thanks to data aggregation, customers have quicker access to their financial information, so they don’t have to rely on dated methods that can be a nuisance. An ever-growing number of apps are continuing to be developed that we use in our daily lives to help manage finances, from wealth management to online banking, money transfers to budgeting apps. When a consumer inputs their banking information into a third-party app by logging in with their bank credentials, they are authorizing the bank to share that data and authorizing the third-party app to access it.
For example, anytime you pay a bill online or transfer money to another account, it is possible because you have authorized those accounts to be connected. The benefit is you’re saving time not having to pay by check or go to an ATM. In these types of scenarios, both companies and customers save time, and benefit from an integrated view into their accounts and assets. Providing this level of ease creates loyalty with the organization that will help them maintain a positive relationship with their customers. Consumers will move money and change banks based on where their data is more accessible. If an app is not integrated or a bank doesn’t support an app that customers use, it’s easier than ever to switch banks. On the other hand, if you offer your customers the simplest ways to access their money and process their transactions, you can expect them to come back time and time again.
What Are the Risks of Data Aggregation?
While there are clear benefits to data aggregation, it’s also important to understand the risks that come with using data aggregators, as well. Here are some of the most significant risks to consider when using data aggregation:
- Privacy and security: While data aggregation can help protect consumer privacy, it also comes with some protection risks. These risks stem from the popularity of third-party sites and apps. As these sites and apps gain more users, the server’s user banks can become overloaded, and the data aggregators can have difficulty differentiating between legitimate users and bad actors.
- Access to services: If an influx of bad actors attempts to access a given site, it can deny genuine users access temporarily. Everyone wants to be able to access their most important data when they need it, so access denial can cause users to migrate to other organizations for their services. An error in data aggregation can have a severe impact on customer satisfaction.
Consumers Are Caught in the Middle
To avoid these potential problems, it may be tempting to avoid data aggregation altogether — and some banks have done so, opting for other alternatives. A financial institution may block the IP addresses of aggregator programs, resulting in consumers being met with error messages as their bank is no longer compatible with third-party applications. With third-party apps and sites becoming ever more popular, such a solution causes an unnecessary headache for the consumer.
In particular, younger generations are fond of the technological advancements data aggregation can provide. Therefore, blocking the IP addresses of data aggregation programs and restricting access causes a strain on the relationship between consumers and their banks by limiting consumers’ access to timely information. Often, the lack of access to a particular app could be enough for a consumer to leave their bank and find one that utilizes data aggregation correctly and thoroughly.
These risks are essential to consider when determining if your financial institution should work with data aggregation. Ultimately, there are clear benefits to enhance the service you provide but it is crucial to weigh the pros and cons to ensure you make the best move with your consumers in mind.
Even still, when you look at the facts, more people are starting to use third-party websites and apps that rely on data aggregation — and the trend is only continuing to gain speed. If you’re wary of the potential issues that could come with using data aggregation, you’ll want to consider a solution to help you navigate these risks. Fortunately, rather than being forced to decide whether to work with data aggregators or block them, there’s a key solution to the potential risks that can allow you to use data aggregation with peace of mind.
The Solution to Data Aggregation Risks and Problems
One of the most popular solutions to the risks associated with data aggregation is an application programming interface (API). It’s a part of software that allows communication between two applications. In short, you ask the program to do something for you, and the API built into the software fulfills your request.
For example, when you’re searching for cars on a website, APIs will take the data you input and retrieve it for you. Therefore, if you put in specifications for a car, like a year, color or model, the APIs will sort through all of the data on the website and return with the specific information you requested.
How does this data aggregation alternative work in the financial sector?
How APIs Work in Banking
Unlike a data aggregation process such as screen scraping, API tools allow companies to access information without complete integration. Essentially, it helps one platform “talk” with another platform to connect the data. Many software developers use APIs to ensure their programs are compatible with various platforms.
In banking specifically, an example would be a payment app like Zelle, which integrates with numerous banks to allow users to send and receive money securely. Rather than creating their own app or having users download an entirely separate app to reimburse someone, Chase, PNC and other institutions integrate with Zelle to make the process easier. The bank shares data with the app and processes transactions for the consumer.
APIs are used frequently across many online platforms, and we use them almost every time we get online. Ultimately, they’re a natural part of the internet. In fact, you may not even realize that you likely utilize APIs every time you search for something online. However, banks are often slow-moving when it comes to adopting APIs, despite the fact that they can solve many of the problems they’re experiencing.
APIs can handle a significant amount of data aggregation strain. If a bank uses an API, consumers will no longer have to worry about slow speeds or the exposure of their sensitive information. For many popular third-party financial apps, seamless data aggregation is important. If a financial institution adopts an API over tactics like screen scraping, they can work toward keeping their customers loyal, as their data will be more protected and secure.
The Ninth Wave Platform
Ninth Wave’s platform has APIs built into its system, which will help you avoid potential information leaks or slow access speeds that exist without APIs. At Ninth Wave, we promise reliable digital banking to both financial institutions and their customers. Ninth Wave clients can expect APIs to integrate effortlessly at one connection point of data sharing connecting with many popular PFM, wellness and fintech apps. The use of APIs ensures the process is smooth for your consumers, so they don’t run into issues involving access to services or their information being leaked.
A huge benefit of Ninth Wave is the connectivity it offers to eliminate the costs associated with having internal IT teams, saving you money and time. Ultimately, our pre-built APIs meet emerging demands as the trend for data aggregation continues to increase and work to provide solutions as they’re needed. As a financial institution, you can rely on our APIs to give your consumers the most streamlined experience possible.
How You Can Succeed With Ninth Wave
With data aggregation only continuing to gain more steam, it’s crucial to stay on top of consumer demands. Whether it’s retail or consumer banking, Ninth Wave is dedicated to giving you the best experience possible. If you’re interested in capitalizing on the growing popularity of data aggregation but don’t want to experience its downsides, our API solutions are the perfect option for you and your business.
Ninth Wave wants you to feel confident in all of your financial decisions. If you have any questions or requests, take the next step towards a successful financial future and get in touch with us today!
About Ninth Wave
Ninth Wave delivers secure, seamless, and standardized data connectivity to fintechs and financial institutions of all sizes, through a single point of direct integration to a universal suite of open finance APIs. With configurable controls, visibility, and insights into all data sharing and data acquisition connections between aggregators, third-party apps, and internal applications, Ninth Wave empowers financial institutions and their customers with access and oversight to their connected apps, enabling secure data exchange in a holistic and scalable open finance ecosystem. Offering solutions for retail and commercial banks, wealth managers, credit card issuers, tax providers, and more, Ninth Wave provides unparalleled connectivity and universal compatibility to complex information systems, unlocking innovation, potential, and performance for your data. Contact us to earn more about Ninth Wave’s secure data connectivity features. Empowering open finance. At scale, at last.