01 April 2005 Features

 

End of the road?

Account aggregation looks like last year’s next big thing, but Egg and First Direct are expanding their offerings. Georgina Stanley reports.

A little under four years ago Citibank became the first bank in the UK to offer its customers the chance to view all of their different online financial accounts on a single site with a single log-in.

Account aggregation was meant to be become the next big thing, offering consumers easy access to their accounts and banks the opportunity to increase sales. Today, Egg and First Direct are the only banks offering the service in the UK after Citibank announced it was axing its MyCiti.com account aggregation service from mid-April.

“Quite simply it was in its fourth year of service and it was in decline,” says David Bacall, head of online banking, Citibank UK. “At its best it had 50,000 users but only about five per cent were actively using the service and that figure was dropping.”

The view that aggregation is on the way out is shared by analysts across Europe who have all but stopped researching the subject. Despite this, Egg and First Direct are storming ahead with their account aggregation services — aiming to expand opportunities rather than scale them down. The service has also become standard for any online bank in the US.

So, what is really happening? There are two approaches to account aggregation. The first, server-side aggregation is used by US banks and was introduced into the UK by Citibank.

Yodlee is one of the biggest providers of the service which involves the consumer handing over all of his or her passwords and log-in details to the aggregating bank which then stores them on its server.

First Direct and Egg use the second approach, client-side aggregation.

Provided by companies such as eWise, it involves the customer downloading a digital safe onto their PC and adding different accounts, storing all of the passwords in the safe where they are encrypted. The key to unlock them is not stored on the PC.

In this model consumers never lose control of their passwords to a third party. eWise’s application suite lets providers control the amount and the type of aggregated data collected through a data feed which can then be integrated with CRM and analytics systems to provide targeted marketing. It also has a transaction application that can support bill payment.

Mark Matthews, managing director of eWise Systems, the account aggregator behind Egg, First Direct and Westpac and HSBC in Australia, says interest in the firm’s technology, which takes on average six to eight months to implement, is growing rapidly.

“We’re talking to all the major high street banks and they’re all considering strategic investment in 2006 — there’s definitely a market for this. Next year you’ll see one of the high street banks signed up,” he says.

“There are advantages to the banks in terms of customer acquisition and retention and also through data insight. They can find out about customers’ external financial relationships and potentially use that data to target them with effective marketing and sales. Also it means increased customer site visits — customers may be logging on once a week rather than once a month.”

Andy Thompson, head of customer proposition at Egg, confirms that the service has been good for business.

“We have just under 200,000 active users,” he says, citing an active user as someone who uses the service at least once a month. “Our aggregated customers visit our site twice as often as other customers and we’ve seen a 20 per cent increase in the value of the customer after they take out aggregation. As a business model it’s very successful.”

So successful in fact that the bank has decided to ‘expand’ its use of the aggregation service to give customers more financial analysis.

“We’re going to increase the number of financial areas you can access and provide greater depth of coverage in line with our strategy of providing customers with more information to help them manage their money. At the moment we don’t intend to give customer specific offers but we do want to give them easy assessment of trends in their finances not just show them their balances,” he says.

First Direct launched its account aggregation service in the UK in April 2004. In November it added extra facilities giving customers the chance to see non-financial accounts like ebay, paypal, reward schemes and phone bills. Like Egg’s service it is available to both First Direct and non-First Direct customers. So far it has more than 45,000 registered users, more than double its original estimates. Of these most are First Direct customers.

“Banks are traditionally very good at coming between customers and their money,” says Jonathan Etheridge, head of e-futures at First Direct. “But I think any bank that’s sensible will want to embrace aggregation. It’s the hi-tech version of the kitchen table — bringing all your accounts into one place.

“We recognise that our customers are multi-banked and we wanted a service that capitalised on that. We want customers to buy more of our products and, the best way to do that is to expose them to our services. By using First Direct as an account aggregator they’re spending more time on our site than if they went straight to their account through their other banks’ sites.”

First Direct has yet to fully integrate the account aggregation service into its CRM system for cross selling but according to Etheridge it will be able to do that in the future — allowing customers to receive appropriate offers.

Etheridge and Thompson were both attracted to the fact that the eWise aggregation technology is client based rather than server based. Both claim it makes it more secure for the customer as the data is stored on their own PC rather than by the bank. They also say customers are more likely to use a client-side service, as they feel safer not handing over their details.

But there are a few potential problems. Firstly, because the data is stored in a safe on the customers PC the customer must download the safe on to every PC they intend to use for internet banking and account aggregation.

eWise does have the technology available to download the safe onto mobile phones and USB memory sticks but so far none of the banks have signed up for this though account aggregator Moneynet.co.uk does use the USB option.

Another issue is that at the moment the account aggregation service in the UK is essentially just a database full of financial details. In the US it has been embedded into online banking making it possible to move money around and pay bills but this is not possible in the UK.

“Account aggregation is really just not part of consumer vocabulary,” says Bacall at Citibank. “Consumers are more interested in what they can do than what the technology is called and at the end of the day if you can’t move your money around it tends to lose its gloss.”

Citibank’s findings seem to be backed up by the analysts. In 2001 Datamonitor predicted that 35 million retail-banking customers would be using account aggregation by 2005 in Europe. The prediction was clearly some way out and analysts seem to have gone rather quiet on the subject.

Martha Bennett, vice president and research director of Forrester Research’s EMEA financial services team, explains: “It’s just not something that consumers are crying out for. In continental Europe it’s not offered at all and for technical reasons it may become impossible to offer it in the UK if banks change the technology for logging on.”

Using screen scraping technology if two-factor authentication were introduced, and online banking customers began logging in with one-time passwords generated by a separate machine, customers would potentially have to enter all of the passwords for all of their accounts whenever they logged on to their aggregation service. This would remove one the biggest selling points of aggregation — ease of access to accounts.

“[The question is] how much would people be put off by the potentially decreasing levels of convenience from two-factor authentication? It would be different if banks cooperated on exchanging information in the background but I can’t see that happening in the current competitive environment,” says Bennett.

Matthews says e-Wise aggregation technology is still consistent with two-factor authentication, as it can drive the user to the relevant page to add a one-time password for each account.

But it would clearly be less convenient than in its current form where the customer only goes through one log-in process to access every account he’s chosen to aggregate.

In contrast the US model allows a range of additional services beyond simply showing account details and it is already being used consistently with two-factor authentication.

Dan Schatt, an analyst with Celent in the US, says aggregation has become so commonplace among the bigger US banks that it is now an enabling technology rather than an application in itself. He claims that it is being used in four new areas: bill payment (paying multiple bills from the single aggregation site from the account of the consumer’s choice), instant account verification, risk management (reducing risk by ensuring that the money is actually in the account before going ahead with an online transaction) and wealth management.

Schatt believes that it is these additional areas that will lead to higher savings for the banks rather than the cross-selling opportunities through linking the account aggregation in with CRM systems.

“In the bill payment space it’s expensive for banks to process all of their bill payments but now applications like Yodlee can facilitate payments,” says Schatt. “The biggest advantage to this is that you can envisage customers paying by credit card which means banks can also make interchange fees on the credit card while consumers get the loyalty incentives by paying with their cards.”

All of this is only possible because the customer has signed a contract allowing the use of data stored on the aggregating bank’s server.

“These advantages won’t work through client side account aggregation,” says Schatt.

Matthews says eWise Systems is working to make some of this additional functionality possible. “You’ll see innovations from budgetary tools and analysis of the data as well as payment tools — so for example payments between different accounts and providers. It will probably happen in the next two years,” he says.

Four years since UK banks started talking about account aggregation in Europe it still seems to be relatively early on in terms of development and implementation but with more communication it could change.

“I think there are three things holding it back here,” says Bacall. “The consumer vocabulary, the regulatory environment and how the data moves around. In the US a lot of the banks talk to each other and send data feeds to each other. We don’t do that here. We’re encouraged by what’s happening in the US but don’t think the interest is here.”

“If banks were willing to share information we’d adapt the technology to accommodate it,” agrees Thompson. “We tried to push this through but most of the major banks were reluctant to adopt it. Hopefully, eventally, as they use account aggregation themselves, we’ll be able to exchange data with them. It would be quicker and more robust.”