Banks are rethinking their investments in technology now that the days of the "blank check" are gone. As banks examine their IT budgets, peripheral technologies, those that lack a specific return on investment, are being carefully scrutinized. The function that has been drawing perhaps the greatest attention is account aggregation, leaving many bankers and techies to ask whether the investment is worth it.
Account aggregation, in theory, should help a bank drive more customers to its Websites, help it retain customers and assist it in cross-selling various products. To get the necessary software, almost all banks with aggregation products rely on a third-party vendor.
But measuring cross-selling and retention in dollars and cents isn't easy, and some argue that accurately quantifying account aggregation's return on investment is almost impossible. The overall value of a technology that many banks claim is the next step towards "unprecedented intelligence" is now being questioned more and more.
As a result, industry experts expect to see change in the account aggregation field over the next two years. And some say that key players, even the likes of market-leader Yodlee, may be in jeopardy of losing customers if banks get a clearer idea of what they should be getting out of investments in aggregation technology.
"Yodlee is definitely the monster in the industry right now, but it doesn't take much to do what they do," says Shaw Lively, an analyst at the Needham, MA-based IDC consulting and research firm. He noted that screen scraping products like Yodlee's aggregation product have been available for years, but banks all seemed to rush in at once only recently. "In a year or two there will be other products available, and it won't necessarily be Yodlee or screen scraping. The data will have to be more relevant."
Today's aggregation products, specifically those that rely on screen scraping, are heavy on quantity and low on quality, says Lively. Most of the vendors to large banks, such as Yodlee, which boasts an 80% market share, use screen scraping to obtain customer data, but that data is not filtered at first. So Lively says that banks end up with some useful data, but usually get more data than they really need.
Melanie Flannigan, the director of corporate marketing at Yodlee, says aggregation technology is changing but is still an important technology for banks to succeed. "It's the most important technology for banks out there right now," says Flannigan. "And when you look at the adoption rate of aggregation when compared with any other technology, consumers are expressing an interest."
| Aggregation: Is It Worth It? Cross-Selling Won’t Overcome Aggregation’s ROI Hurdles | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Source: Forrester Reserarch, Inc.Catherine Graber, senior analyst with Cambridge, MA-based Forrester Research, wrote a report this past summer, "Account Aggregation: The Elusive ROI." In the report she questions the value of aggregation, and finds that customer interest is often overstated. As with any bank technology, the number of people who sign up for a service is usually higher than the number of people who consistently use it. But Graber says more banks will continue to invest, and Forrester estimates that by 2003, 73% of all financial institutions will offer account aggregation.
"I don't think customers' lives are really that financially complex that they need this type of service right now," says Graber. "And it's costing banks money that they can't say they've showed a return on."
The research firm reported that vendor fees generally begin at $70 per user, and usually fall to $36 after three years. There are additional costs that depend on how much maintenance is required by the vendor. Several of the banks contacted said these pricing models are consistent with their deals with third party vendors. But vendors say the service is becoming less expensive, and prices vary depending on the size of the bank.
Despite the complaints of some, a good number of bankers argue that aggregation technology is worth the investment. Michael Jackson, president of electronic commerce at Regions Bank, believes that Regions' account aggregation product is useful for both the customer and the bank.
"Customer information is a catalyst for future business," says Jackson. "If a customer has, say, 15 different relationships with various financial institutions, we can see all of those. We know where they put their money. We would love to have all 15 relationships, but realistically, if we can get one or two more of those now, we'd be pleased."
Jackson says the $45 billion-asset Birmingham-based Regions rolled out its account aggregation product, E-Tracker, in December 2000. It signed a deal with Vertical One, which has since become Yodlee after an April acquisition. Jackson says the bank decided to go with a "soft launch," and did very little marketing for E-Tracker. More than 15,000 customers have signed up to use the aggregation product. "We were certainly not playing defense when we decided to add aggregation," says Jackson. "We saw the need for our customers to view all of their accounts in one place. We wanted to address that need."
Most large banks already offer account aggregation. The product was first gobbled up by financial institutions in 1999, and has been a hot technology for large and mid-size banks since. Yet, Graber, who had been with Wells Fargo & Co. before joining Forrester, predicts that banks will not succeed using their current account aggregation models.
"Banks need a better idea of what they want to get by offering account aggregation," says Graber. Many financial institutions have been on the defensive and have invested in aggregation technology to avoid being left behind, he says, arguing that the business model behind the technology is not solid. Banks are paying for a technology that has not proven itself in terms of return on investment, he says.
"A good number of banks say that the No. 1 reason they offer account aggregation is to increase customer retention, "but that's bogus," Graber said in a telephone interview. "Bankers are abusing the retention benefit and are using it for every technology. That makes it almost impossible to measure a product's value."
Graber points out that almost every large bank offers some form of Internet banking, as well as electronic bill payment and presentment. Such products, says Graber, are retention tools that have been successful in helping banks keep their customers, and increase traffic on their Websites. "You spread the retention benefit across too many products, and the individual values get hazy," she says.
Even its strongest supporters agree that aggregation needs to be something "that isn't just dangling off of a Website," as Lively puts it. Many banks offer aggregation as a product that is separate from Internet banking and electronic bill payment. Bank customers can use aggregation technology but in most cases it is not integrated with their existing online accounts.
Some say integrating account aggregation into other banking applications is the key for banks to maximize the return on their investment. John Philpott, the director of corporate strategy at S1 Corp., says aggregation needs a hook instead of simply providing bankers with data.
"The data itself needs to be integrated with other bank products and services," says Philpott. "The technology needs to be more than just scraping and providing data to make that data useful."
Some vendors, including S1, have integrated aggregation into other software, such as wealth management and analytic software. "If you have $1,000 in your checking account at one bank, and $1 million in a Schwaab account, that bank needs to know about your total assets," says Philpott"or else you're treating a high net worth individual as if he only has $1,000 in his checking account."
Other companies, such as Kinexus Corp., have offered account aggregation technologies for private banks, trying to assist banks in targeting the high net-worth individuals.
Harry H. Totonis, chief executive officer of Kinexus, says the New York-based technology company has attracted clients such as J.P. Morgan Private Bank, Merrill Lynch Wealth Management Services and Credit Suisse First Boston by offering an aggregation product with a specific focus.
"Offering a consolidated view of customer accounts is one thing," says Totonis. "But your customers should be able to do more than just view their accounts. They need to know that it is more than just a visual. It's connected to the institutions and there are advisors accessible to assist customers."
Kinexus and companies like Advent have also shied away from relying on screen scraping. Both use direct data feeds in which customer data is obtained from the institutions themselves. The data is then basically shared among the institutions.
Flannigan says that Yodlee has recently changed its method of aggregating customer data. Of all the information Yodlee gives banks, 25% is based on direct data feeds, with the remaining 75% coming from screen scraping.
"That is one of the benefits of having so many customers," says Flannigan. "So when we form new relationships with financial institutions, we already have the data."
And that is the direction that aggregation must head for to be truly useful for banks. Many believe account aggregation is too primitive at this point to create real cross-selling opportunities, or a significant retention rate. Some industry experts say that account aggregation technology has a long way to go before banks can really reap its benefits.
Lively says there are two major problems with current aggregation products: "The data that banks receive from vendors now is really lacking in quality. And besides quality, there are many privacy issues that need to be resolved."
