Online Account Aggregation Gains Steam, but Should You Try It?
If you haven't heard of online account aggregation, chances are you will soon.
Financial institutions are beginning to offer this Web-based service, which consolidates your online account balances onto a single page, hoping that they can use the information about your finances to cross-sell and "upsell" you their own products.
Why aggregate your accounts? Right now, account aggregation services don't do much more than consolidate your balances. You simply input your user names and PINs for whichever online accounts you want to consolidate, such as credit card, brokerage, retirement, bank, mortgage or billing accounts, and the software searches for your various account balances and consolidates these figures onto a single Web page (some account aggregation systems do this "screen-scraping" intermittently, perhaps only on a daily basis or a few times a week, while others do it in real time).
Its convenience is a reason an estimated 1 million consumers are currently aggregating their accounts, says Paul Jamieson, director of financial services at research company
Gomez Advisors
. Because it gives people an overview of their finances, account aggregation enables them to budget and plan better, he says.
"This is a far more efficient way of organizing your finances than if you had to do it by hand," Jamieson says. "Most people have credit cards, loans, stocks, bank accounts and 401(k)s from various organizations. Instead of having to go through the complex process of finding your balances and organizing them, account aggregation does it for you." And in the near future, account aggregators will put sophisticated financial planning tools within investors' reach as well.
New Analytical Tools
What kinds of additional tools will aggregation offer? Companies are working to include asset allocation analysis, and mortgage and education calculators.
Fidelity
, for example, is in the process of adding an asset allocation tool to its account aggregation service, Fidelity Full View, which is available to all Fidelity customers eligible for this service, including 401(k) customers. It will ask investors about their investment goals, suggest various funds and perform Monte Carlo simulations to show them the probability of their reaching those goals, says Dan Flaherty, a Fidelity spokesperson.
Yodlee
, a software vendor that provides the back-end account aggregation tools for most of the large financial service companies offering aggregation, is in the process of testing other new features. These features include an expense tracker, a module that will be able to tell you your net worth, another that enables you to pay bills online and a spreadsheet that investors can view simultaneously with their financial adviser, says Jim Tashchetta, chief marketing officer at Yodlee. Eventually, account aggregators will include transactional capabilities to allow you to move your money from one account to another, he says.
The financial companies offering account aggregation include mutual fund giants
Vanguard
and Fidelity, brokerages
Morgan Stanley
and
Salomon Smith Barney
, banks like
Citibank
and Internet portals
America Online
,
Yahoo!
and
Quicken.com
. While Yodlee supplies the back end for all of these companies, the sites will eventually differentiate themselves by building additional tools and services on top of what Yodlee provides, says Ken Clemmer, a senior analyst at
Forrester Research
. You can also sign up for an aggregated account directly with
Yodlee, although Yodlee does not actively market this to consumers.
Why the Push?
Companies offering account aggregation are making fairly sizable investments to offer these services, and so far, all of the companies offering account aggregation are providing it at no charge. It costs $500,000 or more to install the Yodlee account aggregation software on a company's Web site and then another $8-$12 a year per user, according to Yodlee.
Research company
Datamonitor
estimates that 32 million people will be using account aggregation by the year 2005.
But before you decide to hand over your financial profile to anyone, analysts suggest that you think about whether you are comfortable letting the aggregator know about your holdings and accounts at other financial institutions. It's possible they could use this information to try to persuade you to switch to their own services and products, analysts say. The
Financial Modernization Act
, passed last year, prevents firms from sharing customer data with outside companies without your permission, but it does not prevent firms from using that information internally, says Forrester's Clemmer.
An executive from Yodlee acknowledges that firms are offering account aggregation not so much to improve customer service as to gain more of your business. "At the end of the day, financial institutions are hoping that this is the Holy Grail, that account aggregation will help them gain a greater share of wallet," says Jim Tashchetta, Yodlee's chief marketing officer. "They are not simply doing it because they believe it will help retention, but gather more assets under management."
But Gomez's Jamieson believes that consumers could benefit by aggregating their accounts at an investment firm's Web site because the firm could make them better offers, such as a lower-interest mortgage or credit card, or even a mutual fund with a better track record or lower fees.
"If financial service companies are able to get a better understanding of their customer and use that understanding to provide customers with better offers, that would be a positive thing," Jamieson says. But if a firm wanted to use aggregated account data to market to customers, it should give them a chance to opt out of such offers, he adds.
Fidelity, for one, says it doesn't intend to use customers' information to sell them Fidelity products. Fidelity Full View makes impartial recommendations for what investors should hold in their portfolios, without preferential treatment for Fidelity funds or services, Flaherty says.
If you're concerned about your potential as a target for marketing, however, you might want to aggregate your account with an Internet portal such as Yahoo! or AOL, which aren't in a position to directly sell you competitive financial products. On the other hand, portals may not be as well equipped as a financial services company to offer you investment advice or analysis, so there's a trade-off.
As for whether account aggregation will eventually become commonplace, Jamieson of Gomez Advisers believes that this will only happen when a host of analytical tools and transactional capabilities are added to account aggregation services.
"By the time aggregation becomes truly effective for consumers, it will have evolved into a much different service than what is available today," he says. Going forward, these services are going to start to distinguish themselves, Jamieson says, and investors should pay attention to these features before selecting one aggregator over another.