As debate continues over how data aggregators shuttle data between banks and fintechs, and whether banks should be allowed to charge aggregators for that data, a startup called Solo has built a bank-led network through which banks share data with each other and with their fintech partners.
The model is similar to Early Warning's Zelle network, which is owned and controlled by the banks that founded it.
The state of financial data sharing today, in the absence of a much-contested rule from the Consumer Financial Protection Bureau that is
Solo's new Customer Data Clearinghouse lets banks share data with each other with consumers' consent.
Among the 100 banks that invest in fintechs through BankTech Ventures, a strategic investment fund that has invested in Solo, many are in conversation with Solo and some are working with it, according to Carey Ransom, BankTech Ventures' managing director.
Interest in Solo's network has increased since
"There's a real cost to providing this data, but most banks are subsidizing these other aggregators," Ransom told American Banker. "Why not have a bank-owned and supported network, as opposed to one that's totally owned and operated by a third party?"
It would be like a group of Uber drivers creating an app that they partly own, he said. It could also be compared to the way Visa was owned and controlled by its bank members before it went public.
"What Solo is doing, in theory, is a great idea," a fintech industry representative said. "It's data sharing, it's revenue sharing, there's an ecosystem in which everybody benefits. I could see how the smaller, innovative banks like that concept, because it gives them a mechanism in which to compete."
How Solo's bank-owned network works
Data scientist Georgina Merhom founded Solo two years ago as a fintech that helps banks collect customer data.
"If you look at how data is collected today, there is the manual labor that a bank has to go through to verify specific information, to ask for explanations, to ask for proof and if there's conflicting information between two data sources, to resolve that," Merhom told American Banker.
The largest use case has been in lending, but Solo also helps banks with onboarding new customers and with some compliance tasks, she said.
"Solo today powers $400 million in monthly lending volume, and we essentially replace the human labor associated with the back-and-forth customer data collection and orchestrating between third-party sources and then self-reported information and resolving any gaps in between," Merhom explained.
Solo has "a really strong understanding of data collection and Georgina [Merhom] has a really strong background in data science, data collection understanding, validation, security, a lot of the foundational underpinnings," Ransom said.
"Say a bank is going to underwrite a small-business loan, there's a tremendous amount of upfront cost of collecting data and even doing something as simple as creating a financial model on this business to decide whether you're willing to make a loan to them or not," Ransom said. "They're emailing you financial statements out of their accounting system, and you have to then take those, probably PDFs or spreadsheets, break those down and bring them into a system that you're using to recreate the financials in the way you want to look at them as a lender, and then recalculate that ratio. And then you may want to see their transaction record. You might want to get access to their point of sale system."
Solo's data collection platform provides "tremendous efficiency on the front end, where a lot of the cost is for financial institutions to underwrite and make loans, and this is why it's so expensive to originate a loan for a lot of institutions today and many of them have moved up to higher and higher dollar loans," Ransom said.
Why banks are seeking alternatives to data aggregators like Plaid
"We're in a world where few people really understand the challenges that both customers have and that fintechs and banks have in data collection and even things like reuse," Ransom said. "A lot of financial system infrastructure has historically been stove pipe applications where the data collection burden is for the most part on the customer. It goes into a decisioning engine and then lives there. And if, for example, you don't qualify for that product, and the institution says you're probably better suited for a different product, you have to start over. You just don't have portability and reuse. You certainly don't have it across institutions, and so you have an extreme amount of inefficiency in the system."
Solo's new Customer Data Clearinghouse allows for cross-institutional data reuse of customer data with customer consent, Merhom said.
"We've realized that when you go to an institution, they're asking you the same question that someone else asked you, and there is no memory of that existing," Merhom said. For instance, if a person owns multiple businesses, that person has to repeatedly explain that ownership situation to different banks, their track record does not follow them.
"It has created a lot of redundancy and cost," Merhom said. "The only people that benefit from the reset are the aggregators. It's definitely not the customer, and it's definitely not the institutions."
If a consumer wanted to open an account at Chime and Chime was in the Solo network, Chime would query the network and see what information exists for that person. Chime would get back a list of available datasets on the customer available among members of the network: One bank may have verified the customer's identity as of a certain date, another bank or company might have the person's pay stub, another might have the person's latest tax return.
"With the customer's consent, we can access these things, and then the entity pulling the information, which in this case would be Chime, could decide if the information is recent enough, or if they need to do a completely new verification of their own," Merhom said.
Data aggregators are data sources used in Solo's network today, Merhom said. "That doesn't mean that one day they won't be deemed unnecessary," she said.
"The third-party aggregators have essentially, for the last few decades, taken all the work that the banks do in the data collection process and monetized it," Merhom said. "And no one has flinched for the last 10 years, and now that banks are asking to be paid, everyone's flinching." This was a reference to the June news that
Reducing redundancy in financial data collection
Data aggregators gather the same customer profile data from banks multiple times on behalf of different clients, Merhom said.
"In that reset that's happening between institutions, the only people that are getting paid per reset are Plaid," Merhom said. "The customer doesn't benefit from the reset, and the institution definitely doesn't benefit from the reset."
A Plaid spokesperson said this is a misrepresentation of how it operates.
"Every connection through Plaid begins with a consumer's permission, and we act in their direction," she said. "Half of Americans with a bank account have relied on Plaid to power the apps they trust for budgeting, saving, accessing earned wages and more. Consumers expect to access their data in real time. While institutions raise concerns about their capacity to support rising demand for data access, many also rely on open banking in their own products. Further, calling a bank's API when a user is not present once they have authorized a connection is a standard industry practice supported by all major banks in order for consumers to get critical alerts for overdraft fees or suspicious activity, and to provide up-to-date data for budgeting."
In Solo's network, the originating bank can receive a fee for customer data and Solo gets a transaction fee. Pricing is set by bank members, Merhom said. Banks can use Solo through an application programming interface or a portal.
"The Solo model says that data is not commoditized or is hoarded; institutional trust cannot be owned by anyone," Merhom said. "It has to be shared and verified and recognized by everyone in the network, and so having a network model makes sure that there's no monopolization over customer data and that no single player controls the economics and from a data sharing perspective."
Solo's primary use case today is lending. When a member bank is vetting a new loan applicant, it can see what other banks know about the potential applicant.
One question is whether Solo can gain enough network members to be able to compete with large data aggregators that connect to thousands of banks and fintechs and gather data of millions of consumers.
Some of the banks in Solo's network provide banking as a service to fintechs, which means they have access to the data of their fintech partners. If a community bank partners with a fintech like Chime that has millions of customers, that bank has access to Chime's customer data, potentially. However, the fintechs might not want to have their bank partners share their customer data with others.
