The fintech landscape is evolving at a rapid pace, with consumer financial data from multiple FIs being accessed in a multitude of apps and software solutions. In order to provide useful tools and features, data needs to be available when and where the consumer needs it. Financial data aggregation is a critical component for enabling seamless financial transactions and robust financial reporting, empowering the world of open finance and data that we rely on, and often take for granted, having every account connected on our phones and in our pockets.
What Is Data Aggregation?
Leading aggregators provide a service by consolidating financial information from disparate resources into the tools that need them, such as Venmo, Acorns, Personal Capital – just to name a few 4th party apps many of us use daily. This data integration is vital for comprehensive financial management, and can offer convenience, access, and even insights into spending habits, investments, and overall financial health.
With the ability to access investments, savings, checking accounts, insurance policies, credit balances, and more, have you ever really thought about how does that information get shared in all those tools? Which apps have access? Is it secure? Let’s explore a little further.
Behind the Scenes: How Is Data Aggregation Achieved?
To integrate multiple data sources, financial data aggregators use one of two main methods: screen scraping or APIs.
Screen scraping involves extracting data from consumers’ accounts by mimicking human interactions. After you log in and provide your credentials once, the aggregator stores the username and password, and repeats an automated process, regularly visiting third-party websites, signing in with the user’s credentials to collect updated account details. A major drawback of this approach is that disclosing credentials to third parties is inherently risky and can expose users to identity theft, fraud, and unauthorized access to financial information. Screen scraping can also be unreliable, since any change to a login page or interface can result in failed transactions and a poor user experience. Because of these security and user experience concerns, some financial institutions have begun blocking scraping by third parties, raising the bar for their customers, while upcoming federal regulations also seek to improve security and data permissioning for all.
For more on the impending Consumer Finance Protection Bureau (CFPB) Personal Financial Data Rights rule, also referred to as Dodd-Frank Act 1033 Implementation, our “Sharing Financial Data Securely: What Compliance with CFPB’s Personal Financial Data Rights Rule Means for Financial Institutions” blog dives into all the requirements.
APIs, by contrast, give users the ability to authorize access without sharing security credentials and allows them to limit the scope of information shared. With APIs, financial institutions can control who has access to data and services, and they can require third parties to follow security protocols. Encrypted data transmission, authentication mechanisms, and access controls provide additional layers of security. APIs are more stable than screen scrapers because they run on dedicated servers, while screen scrapers can be affected by external factors like website changes and anti-scraping technologies. APIs also provide more frequent and reliable data syncs than screen scraping.
APIs have gained favor in recent years and are at the heart of the modern definition of Open Banking: “the practice of allowing third-party financial service providers to access consumer banking information through secure application programming interfaces, enabling new products and services based on customer data.”
In our blog, “Open Banking vs. Screen Scraping,” we examine the drawbacks of screen scraping in more detail, including its security risks and inefficiencies. Security experts consider APIs safer than screen scraping.
Data Security is Critical in Financial Data Aggregation
In the first six months of 2024, the United States saw some of the biggest, most damaging data breaches in recent history. As data breaches and cyber threats become increasingly sophisticated, the importance of robust security measures cannot be overstated. Financial data is of the highest sensitivity, and the consequences of data breaches can be catastrophic.
Advancements in security technologies, such as encryption and multi-factor authentication, provide enhanced protection against unauthorized access and data breaches. Regulatory compliance is also evolving, with new standards and guidelines aimed at ensuring the security and privacy of financial data. For example, the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the United States set stringent requirements for data handling and protection. The Consumer Finance Protection Bureau (CFPB) is expected to release additional rulings later this year, to promote a safe, reliable, and competitive environment for data sharing — a truly open banking ecosystem. CFPB aims to establish basic standards for data access, transition the market from screen scraping practices to more secure alternatives, and ensure that the full range of technical issues in the open banking system are addressed using fair, open, and adoptable industry standards.
For a deeper dive into evolving CFPB compliance and regulations, we covered “Demystifying the Proposed CFPB Rules: What Banks Need to Know Now” and we continue to stay on top of the evolving regulations for our clients.
The Role of Open Banking in the Modern Financial Landscape
Open Banking provides benefits to financial institutions and their clients as well as the industry at large. It gives consumers more control over their finances, enabling them to monitor their accounts in real time. Through open, integrated banking data, consumers can access apps to help with financial management, including budget management, investment strategies, tax preparation, and more.
Additional services – such as portfolio analysis, credit monitoring, bill paying, financial and tax planning, budgeting tools, and the ability to track home value and mortgage information – are often made possible through the seamless integration of financial data sources. Data security should be considered paramount above any feature, and when consumer data is protected and secure, the industry can continue to innovate and serve the banking consumers well.
Financial institutions can simplify payment processes and offer customized services and products through APIs. Open Banking also enables financial institutions to offer new services to their clients through partnerships, improving customer service.
For a more comprehensive examination of the importance of secure data aggregation, refer to our earlier blog, “A Safer Alternative to Financial Data Aggregation,” for a detailed look at the pros and cons of data access.
Safe, Secure, Controllable APIs via Open Banking Are the Future
After more than a decade, screen scraping is being phased out in favor of more secure, controllable integration options, and we honestly couldn’t be happier to see open finance standards rising as market education increases as to what is really happening behind the scenes to expose your data in all the places you expect to find it (and how to keep it out of the places you don’t want it)
Open Banking via APIs provides a more secure, reliable, and customizable way to share data.However, data security is just the beginning. Implementing a single source of financial data connectivity like Ninth Wave enables complete control over the data sharing process. With Ninth Wave, both the financial institution and its customers can choose exactly which accounts (including checking, savings, money market, credit card) they want to grant – or revoke – access to. They can provide, limit, or terminate access at any time, ensuring complete control over their data with the flexibility to immediately cut access, for example in the event of data breaches. Ninth Wave never stores the users’ login credentials or any account information. The customer has full access over how, where, and when their data is accessed only by the apps they explicitly permission.
Ninth Wave provides financial institutions and their customers access and oversight to their connected apps, enabling secure data exchange in a holistic and scalable open finance ecosystem. Ninth Wave is the leading enabler of secure data connectivity between financial institutions and third-party applications including aggregators, fintechs, accounting solutions, tax prep software, and other consumer and business solutions. Seven of the ten leading banks in the United States and eight of the top 10 U.S. wealth managers rely on our platform to integrate their financial data and provide for their customer bases.
With Ninth Wave, financial institutions can confidently navigate the intricate landscape of data-sharing regulations, ensuring operational efficiency and a robust approach to consumer data protection and security.
Contact us to learn more about how to improve your financial institution’s offering to meet the Open Finance needs of your consumers.
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 learn more about Ninth Wave’s secure data connectivity features. Empowering open finance. At scale, at last.
