Aggregating Financial Data - Explained
Familiar with Financial Intermediaries?
If you are familiar with the concepts of Data Aggregators, Payment Platforms, and Financial Intermediaries in general, you may skip to the next section.
Have you ever wondered how your home budget planning application gets your data when you have different types of accounts in different banks? You’ve probably heard about Open Finance initiatives such as Financial Data Exchange (FDX), Consumer Data Right, Brazilian Open Insurance or different. You already know that Open Finance initiatives are good for you as a customer. You can use one app to have access to all of your accounts. You can make online payments. You have access to a more competitive market and better offers. Do you, however, think that your application really integrates with every financial institution that you see in your application?
In some markets and countries, the amount of financial institutions that offer the same services is substantial. It introduces a significant overhead for fintech businesses to provide services and integrate with as many different institutions as possible. Keep in mind that companies want to optimize the costs and keep the integration effort as little as possible. What do we usually do when the prize is tempting, but the step is too big? You’re right – we find a middleman. For fintech businesses, such a middleman is called a financial intermediary.
A financial intermediary is an institution (or business) that acts as the middleman between two parties to facitilate a financial transaction. In our case, there does not need to be any monetary transaction taking place at all (but it obviously can), since in the world of APIs, our transactions are sharing of consumers' data. Such businesses collect all types of financial information in one place. Once the institution has the data in one place, they can distribute it to other parties over a single set of APIs. In general, you could say two types of financial intermediaries are most common – Financial Data Aggregators and Payment Platforms.
Financial Data Aggregators, as the name implies, aggregate consumer’s financial data from different types of accounts – including bank accounts, credit cards, accounts, investment accounts, and more – into a single place. Payment platforms, on the other hand, are created to provide merchants with the possibility to integrate with only one payment processor or payment service provider instead of many.
Does Open Finance Have Only Benefits for Financial Data Aggregators and Payment Platforms
The increasing amount of different Open Finance ecosystems available worldwide gave data platforms an unlimited option to broaden their market. Connecting other points on the map is easier than ever. Many countries have already made it mandatory for banks to open their doors and share data upon customers' consent. With many Open Finance ecosystems already existing and new ones appearing, the cost of integrating with financial institutions should also be lower due to the Data APIs being standardized (at least within a particular jurisdiction). Are the costs lower?
Open Finance ecosystems indeed standardize data-sharing user experience but also introduce a number of different and complex requirements that financial intermediaries must face, especially in terms of data security during its consumption and further sharing, customer consent management, the application registration process, and data sharing transparency. With such requirements, cost optimization and, technically, the frictionless market expansion is real only for those intermediaries that either acquire solutions from specialized companies or build them on their own. Only with advanced technology, financial data aggregators, payment platforms, and other intermediaries can streamline connectivity to financial institutions, manage customer consent, and securely share data further down the chain.
The position of data aggregators and payment platforms in the middle of the sharing chain implies noticeable security- and consent-related overhead. Due to usually strict ecosystem security and consent requirements, aggregators that act on behalf of fintechs – just like fintechs themselves – face the challenge of establishing connections with financial institutions. Additionally, due to the ecosystem’s security and customer consent requirements, aggregators now need to do fine-grained authorization, and maintain the mapping between the customer data, users' consent, and sessions established between fintechs and financial institutions. Without proper technology, it becomes a complex problem to be solved that causes friction for business expansion.
Grow Your Business With Cloudentity
With Cloudentity advanced access control and authorization capabilities it is possible to avoid the hassle of implementing an internal authorization platform.
Cloudentity offloads aggregators from complexities related to managing customer consent. It maps customers' sessions. You can set up fine-grained access control of data from various sources so that the data can’t be meshed up with other sources and shared further as freely as earlier. Cloudentity makes integrations with financial institutions low-cost enabling borderless scaling of the business. Cloudentity makes onboarding of new fintechs and operations on their behalf easy thanks to its focus on developer experience and overall developer enablement capabilities.
Feeling convinced? Set up a free tenant right away and start complying with Open Finance ecosystems! If you need more resources, we’ve got you covered too! Check out the below solution guides to learn more about Cloudentity and its solutions:
If you want to jump to action straight away but need a helping hand, see our Open Banking, FDX, CDR How-Tos.