Many thanks to 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. Learn more about MX here.
Over the past month, we’ve spent a lot of time writing and talking about data aggregation. It’s not the world’s sexiest topic, but it’s one we’ve begun to appreciate. There are parallels with the first stage of the internet. You needed to get machines and devices all connected and then open up broadband pipes to let information flow.
The same is happening with data aggregation. Giving an individual access to his or her data sets the stage for providing new types of financial services, advice, and functionality. Data aggregation even impacts the definition of what a bank is — and isn’t — going forward. Most of all, it places the individual at the center of the financial system — his or her personal financial ecosystem — to make more informed decisions and lower the stress that accompanies lack of full information about our finances.
So, for our last episode of the series, we’re looking out toward the future. MX’s co-founder and CTO Brandon Dewitt joins us to talk about where data aggregation started, where it’s headed, and what that means for the future of finance.
The journey to create a data aggregation firm
Before I started MX, I came from the credit bureau, Experian. I had seen a lot of what happens on the debt side of the story. In my early to mid twenties, I was coming to the realization of what it means to completely change the future to a future you want to participate in and see. I was pretty sure that I needed to go out and at least, make an attempt at building something.
I was part of starting a company in Indianapolis called My Jibe. Ryan Caldwell had started a company in Utah called MoneyDesktop. About 15 months into that journey, we ended up meeting and decided to bring the companies together to do something big. We like to say that if we weren’t cut from the same tree, we’re at least cut from the same forest. We had similar views about the world going to advocacy, that financial institutions would be part of that journey, and that partnering and innovating with FIs was going to be a significant opportunity to create the world we wanted to see.
Where we are in the data aggregation story
Back in 1995, there was an entire world of consumer privacy that was yet to be discovered. There was the idea of the internet and it was starting to manifest. It was really easy for a company to set up a screen scraping operation and to go out and utilize that data.
As you start looking at the foundations of the internet, organizations like Yahoo and Google were really just crawling the web, classifying the data they found. A very similar thing was happening with banking data. Then we started to think about the rights of the users living on this platform. A conversation around privacy began happening around that same time. What are the important questions we need to ask about the rights and consents of that information?
Today, if I look at when we came out of the dial-up world and you saw the possibilities of fiber and high speed bandwidth, a similar thing is happening in the data aggregation world. We’re discussing how to make sure that users are consenting to use their data and that they understand what the data is used for.
How do we completely get rid of storing usernames and passwords on any system? We can actually use protocols — like those written to sit on top of the internet like OAuth and OpenID — that guarantee the chain of ownership of data and that said personal identification is never shared with any intermediary party.
Right now is the Industrial Age of Data Aggregation because there’s all this infrastructure being set up, like the Financial Data Exchange and with groups like FDATA. There’s so much going on in Europe with Open Banking and what we’re starting to see in Canada, Australia, and Hong Kong.
Where this heads in the future
As we come out of building the infrastructure, we’re going to see organizations that are wholly oriented toward advocating on behalf of the consumer and finding the right products that meet the right people at the right time. We’ll actually see consolidation where consumers will build deeper and deeper relationships with their primary financial organizations because those firms will take care of so many aspects of their lives.
These financial firms will know when and how I get paid, when my bills go through — they’ll be an intimate part of arbitrating between whether I need a two day float for $50 or whether I am putting too much money in savings. We’re right at a whole new era of data stewardship and data advocacy.
The banking system of the future
One of the things we talk about is the interplay between banks and fintechs. We fundamentally believe that banks are really part of the societal contract that we have with our government. Their main role is to avoid pandemonium and runs on banks. They will begin coming together with fintechs and looking a lot more like what we call fintech today.
We’ll see banks do other things along that curve, too. Ten years ago, people questions why Amazon, a bookseller, would compete in selling cloud data platforms. Today, AWS is the largest cloud compute and data platform. There’s been a massive shift in what it means to be an advocate.
The same type of thing will happen in financial services. I think we’ll see financial services and banks be in the center of conversations about how people find jobs and optimize their income. They’ll say, if you want to continue to optimize your investing and savings, here are opportunities for you to participate in the gig economy in your area — outside of your day job.
Financial institutions will become more than just a place to set cash. What it comes down to at the end of the day, every time we spend money, we’re participating in the value chain of a financial institution. It is incumbent on the FIs to look at all the times value is exchanged and see where they can provide more value to the value chain so that the consumer is at the very center of being the winner. As we see this happen, we will view banks vastly different than we do today.