We’ve been reporting a lot recently on the data aggregation industry. Gradually, over years, firms like Plaid, Quovo, Finicity, Yodlee and MX have been building real businesses by pulling, cleaning and delivering people’s bank account data to the fintech apps and software that they use.
Before we jump into our show. I’d like to thank our sponsor MX for supporting Tearsheet’s work. MX is a leader in actionable financial data, enabling financial institutions and fintech providers to grow faster, reduce costs, and deliver exceptional customer experience.
Joining me on today’s podcast is Tearsheet’s Meir Leff. He’s been behind some of our reporting on the data aggregation industry.
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The following excerpts were edited for clarity.
Why should we care about data aggregation? And why now?
We've all seen the news that Plaid raised $250 million on a $2.6 billion valuation. They also just acquired Quovo. There's money sloshing around, so we decided to look deeper.
Data aggregation is the aggregation of bank connections. In the U.S., you have like 11,500 banks and credit unions. Each one of these financial institutions has its own technology system. To access customer data in each one would be cost- and time-prohibitive, not to mention the fact that as a fintech firm, you wouldn't want to store millions of account credentials yourself.
Data aggregation companies endeavor to make all those connections themselves with banks and wealth management firms and share them via a single API with their technology customers.
Who uses data aggregation? What are the use cases for data aggregation?
You have a variety of companies that are customers. Alternative lenders like OnDeck don't just look at a borrower's credit score. They also pull bank account information to get a full financial picture of their clients. To do that, they connect to bank accounts.
Personal finance managers help people manage savings and spending, so apps like Mint also require the aggregation of financial data to display it in one dashboard. Some apps can even aggregation foreign currency and international accounts.
International money transfer firms also use data aggregation. Firms like Transferwise debit an account in one country and credit an account in another country. For convenience sake, remittance companies use data aggregation to make account authentication and login easier. They also use data agg to ensure customers don't bounce wires because they don't have sufficient funds in their accounts.
How do data aggregations access bank data?
There are really two different ways. The first way is by using an API provided by the bank. More firms are starting to offer these pipes to their customer accounts. These API connections are more secure than the second way data aggregators get at the data: screen scraping. This method uses small computer programs or bots to log in automatically using a person's credentials. Once inside an account, they crawl and send the bank account information back to the data agg firm.
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