Guide to Financial Data Aggregation and Open Banking

The world of fintech is fast-paced and ever-evolving. One of the current necessities in the business landscape is to collect and integrate data incoming from various sources more efficiently. Financial data aggregation is what should come in assistance here. 

I’m Vladyslav Slipchenko, a .Net engineer at DashDevs, and I am willing to share my expertise on data aggregators with you. Whether you’re brushing up on your knowledge or diving into this topic for the first time, this post will contribute significantly to your understanding of the technology and its business implementation. 

In this post, you’ll discover more about data aggregators and how they work. Besides, you’ll explore why you actually need the services of fintech data aggregators and what the risks associated with entrusting the management of data to third parties. Additionally, you’ll explore data aggregators available on the market.

What are Data Aggregators and Aggregation?

Data aggregation is the process of gathering, compiling, and summarizing data from multiple sources into a single, cohesive dataset. 

Aggregated data is typically analyzed to extract valuable insights, identify trends, and make data-driven decisions. Alternatively, extracted reports may be simply moved to a repository without any processing and used later on.  

At the same time:

A data aggregator is a software system or a tool that collects data from various sources, including databases, websites, applications, and other repositories, and compiles it into a single, unified format.

Data aggregator may also refer to a technology company that provides data aggregators as software products and data aggregation as services. Examples of companies serving as data aggregators are provided in the sections below.

Who and Why May Need Data Aggregators?

You may be asking yourself, “Is open finance data aggregation even a trend?” If so, take a look at the infographics below showcasing the latest niche stats and tendencies:

Basically, financial account aggregators and their services become more and more widespread as an increased number of businesses are interested in having a consolidated overview of their finances. 

Imagine dealing with 1000 banks in the EU, each with its unique API and way of managing data. It would be a nightmare to cooperate with them individually. Data aggregation simplifies this process by gathering, summarizing, and storing tons of data into a format that’s straightforward to work with. 

For the ease of explaining how exactly data aggregator companies are useful, I decided to split the explanation into two parts, devoted to data aggregation in financial businesses and non-financial businesses, respectively:

#1 Financial businesses

Examples: Banks, fintech companies, wealth managers, credit unions, investment firms.

What data they aggregate:

• Customer account information (Balances, transactions)
• Investment portfolios and performance data
• Credit scores and lending histories
• Payment data (Debits, credits, transfers)
• Financial product data (Mortgages, loans, savings)

What finance applications and instruments are powered by aggregated data: 

• Personal finance management apps
• Lending platforms 
• Wealth management tools
• Fraud detection systems
• Regulatory compliance tools

What benefits do they obtain by utilizing data aggregation tools:

• Enhanced customer insights
• Improved operational efficiency
• Better risk management
• Streamlined compliance
• Increased revenue opportunities

#2 Non-financial businesses

Examples: E-commerce platforms, tech companies, telecom companies, insurers, real estate firms, travel agencies.

What data they aggregate:

• Consumer payment and spending data
• Supplier and vendor payment data
• Subscription and billing information
• Credit and risk data for clients or customers

What non-finance applications and instruments are powered by aggregated data: 

• Customer analytics and insight systems
• Credit risk assessment tools
• Supply chain optimization solutions
• User experience (UX) enhancement frameworks
• Targeted advertising and personalization engines
• Operational efficiency monitoring tools

What benefits do they obtain by utilizing data aggregation tools:

• Deeper market insights
• Enhanced customer experience
• Better credit and risk management
• Improved operational efficiency
• Targeted marketing

Note: While the listed types of data are most widespread, nothing prevents you from aggregating any other information, like chat histories of your customer support center, records of important calls, reports from any internal or external applications, etc. Consider data aggregators your tools for gathering and storing any information you consider valuable. However, keep in mind that most data aggregation tools are mainly suited to working with financial data. 

Looking for a trusted provider of custom software development services to handle your data aggregation needs? Let DashDevs experts handle. 

How Do Data Aggregators Work?

Here’s a simple step-by-step data aggregation workflow:

1. Data collection. A financial account aggregator gathers data from various sources, including APIs, web scraping, direct database access, and importing files like CSV or JSON.
2. Data integration. Then, it normalizes different data formats and aligns data fields to a unified schema, ensuring consistency across sources.
3. Data cleaning. After that, the financial aggregator removes duplicate records, corrects data errors, and handles missing data to improve data quality.
4. Data transformation. In the fourth step, the financial account aggregator enhances data by adding additional information, summarizes data into aggregates, and filters data based on specific criteria.
5. Data storage. Next, the cleaned and transformed data is stored in relational or NoSQL databases or data warehouses designed for large-scale data management.
6. Data presentation. Finally, a financial aggregator visualizes data through dashboards and reports, provides APIs for data access by other applications, and offers export options in various formats.

Note: Not all data and account aggregation solutions work exactly in this way. For example, some financial data aggregation solutions may not have features like data analytics and presentation. Others serve as intermediary gathering and transferring data to a central repository, therefore not fulfilling the roles of data cleaning and storage.

You can see the visualized data aggregation process in the image below:

How financial data aggregation is connected to open banking? Well, that’s simple.

Open banking is a concept under which banks share sensitive information about their customers and their banking accounts upon their consent. In its turn, a financial account aggregator can help to receive, standardize, and store this data. The purpose is to provide users with services like account analytics, expense management, budget advisory, and others through dedicated third-party apps. 

You may discover how open banking works and how to integrate it into your business in another blog post by DashDevs. 

What Are the Risks Associated with Data Aggregators?

Regarding data aggregators, the primary concerns and risks revolve around banks and financial institutions, not fintech products or startups.

Here are the common concerns related to utilizing the services of data aggregators:

• Could these data aggregators misuse the data they collect? 
• Are they scraping more information than they need from a customer’s account? 
• Is there a risk that they might store this sensitive data and become victims of a cyberattack, potentially exposing users’ financial information? 
• Banks have sometimes taken measures like blocking certain aggregators due to these screen scraping concerns.

Some data aggregators used a method called “screen scraping” in the past. This method involves getting hold of a customer’s login and password to access their bank account. 

If you are looking for the answer to the question ‘Is Plaid safe for banking or are any data aggregators safe?’, you, most likely, keep these specific risks in mind:

To tackle these issues for financial institutions, modern data aggregators like Plaid and others move towards a more secure approach: APIs or Application Programming Interfaces. APIs are the gold standard for connecting with external firms and are way faster and more secure than screen scraping. They allow bank and credit union customers to use third-party applications without revealing passwords and credentials.

You can discover additionally about data and cybersecurity in fintech in another blog post by DashDevs. 

How to Choose a Data Aggregation Provider?

When it comes to financial aggregators, they all might do roughly the same thing. However, in reality, these providers are quite specialized in the services they offer. Some focus on investment data, others on lending, wealth management, startups, or banking. As a business owner or startup, choosing the financial data aggregator that aligns with your specific needs and goals is essential.

Consider the following criteria to choose the best-fit data aggregator:

Top 5 Data Aggregation Companies 

Let’s delve into a rundown of data aggregation companies, each with unique features and focus. When considering these companies for your business, keep an eye on factors like coverage, pricing, and developer-friendliness.

#1 Plaid

Plaid, bank safe partner, is a prominent data aggregation service provider, gaining significant attention and capital investment. It is considered to be the most developer-friendly data aggregator. Plaid has significantly succeeded, boasting API integration capabilities and gaining popularity in the fintech industry. In 2019, Plaid acquired Quovo, a notable player in the Data Aggregation sector. Some well-known clients and banks that work with Plaid include Venmo, Transferwise, MoneyLion, Upstart, Acorns, Robinhood, and Betterment.

#2 MX 

MX, a financial account aggregator, has cultivated partnerships with over 1,800 financial institutions and 43 leading digital banking providers in the U.S. and Canada. Initially focused on data aggregation methods, MX has expanded its services into data visualization, personal finance management, and data analytics. MX efficiently routes traffic to 48,000 connections by collaborating with other data aggregation companies.

#3 Finicity

Finicity boasts connections with approximately 15,000 financial institutions in North America, offering extensive coverage of U.S. deposit accounts and wealth management. The company specializes in credit decisions and is a credit reporting agency for specific products. Famous clients include FICO, Experian, Ellie Mae, Freddie Mac, and Fannie Mae.

#4 Mobius Services

Mobius Services is among the top data aggregation service providers with a strong presence in India, the U.K., and the USA. Their services include data enrichment, digital marketing, retail content services, research, and consulting. Mobius Services caters to various industries, including information providers, travel and hospitality, oil and gas, e-commerce, retail, finance, real estate, and shipping.

#5 Yodlee

Yodlee offers comprehensive data coverage and a wide array of tools and services tailored for the financial sector. Additionally, Yodlee has introduced an incubator and launchpad to foster the fintech industry’s adoption of its tools and data. Notable clients include ING, Microsoft, Tandem, Transferwise, Personal Capital, and Experian.

Need assistance with product development? Don’t hesitate to reach out to DashDevs if you have any questions or need assistance.

Why Should You Pay Attention to Plaid?

You have probably ever wondered how Venmo, Acorns, or Betterment seamlessly manage your financial data. The answer often lies in Plaid. Think of Plaid as a bridge, effortlessly connecting your app or platform to your customers’ bank accounts. It simplifies the complex task of linking various financial institutions, making it a breeze. With Plaid, users can easily connect their bank accounts, and you can securely access their financial data.

Plaid’s founders, Zach Perret and William Hockey, initially launched Plaid as a bookkeeping and budgeting platform. Today, Plaid’s influence extends well beyond the United States. Its services have reached countries like the UK, Spain, Canada, Netherlands, Ireland, and France. This means Plaid’s online banking capabilities are not limited to its home country, providing enhanced security to European financial and banking systems.

“We’re a B2B company. It means we work with business, not consumers. BUT, we strongly focus on empowering developers to build a fintech ecosystem, enabling them to create diverse financial products for consumers.” Zach Perret, Plaid CEO.

From a technical standpoint, Plaid, along with competitors like MX, Dwolla, or Stripe Connect, harnesses the power of financial data APIs to ensure seamless communication between your encrypted information, a bank, and the fintech app of your choice. So, is Plaid a safe choice for business purposes? Given its widespread adoption by renowned global fintech banks, the answer is a strong “yes” rather than a “no.”

What Is Setting Plaid Apart from Competitors?

Plaid differentiates itself from competitors like MX, Dwolla, and Stripe Connect by offering a comprehensive and secure platform that facilitates seamless connections between apps or platforms and customers’ bank accounts. Here are some specific services and solutions that make Plaid open banking unique:

• Wide geographic reach. Plaid’s services are not limited to the United States; it operates in several European countries, including the UK, Spain, Canada, Netherlands, Ireland, and France. This broad geographical scope allows businesses to access secure financial data from various regions.
• Versatile integration. Plaid online banking provides a user-friendly integration process for users, developers, and, consequently, product owners. Users can easily link their bank accounts, while developers can quickly set up Plaid in their web or mobile applications. This simplifies the integration process, enhances the safety of fintech operations, and makes your product a market winner.
• Security measures. Plaid prioritizes security since it has advanced encryption protocols, such as Transport Layer Security (TLS) and Advanced Encryption Standard (AES 256). It also implements multifactor authentication (MFA) and regularly undergoes security reviews by independent parties. These security measures ensure that sensitive financial data remains protected.
• Privacy protection. Plaid’s privacy policy emphasizes protecting users’ and customers’ private data. It does not sell this data to third parties, guaranteeing that sensitive information remains confidential.
• API utilization. Plaid leverages financial data APIs to establish secure connections between encrypted data, banks, and fintech apps. This API-based approach enriches communication and data transfer, creating a smoother user experience.
• Global acceptance. Plaid’s widespread adoption by more than 5,000 services and applications, 11,000 financial institutions, and 40,000 developers highlights its worldwide acceptance and influence. Well-known apps like Venmo, Robinhood, Acorns, and Mint, and central banks like Chase, American Express, and PNC trust it.
• Open banking embrace. Plaid has embraced the concept of open banking, aligning with the industry’s shift towards greater transparency and accessibility of financial data. It complies with regulations like the revised Payment Services Directive (PSD2), which is crucial for working with financial management tools and offering Account Information Services (AIS).

NEED EXPERT GUIDANCE ON DATA AGGREGATION SOLUTIONS?

DashDevs teams of expert fintech engineers is ready, willing, and able to contribute to your best project

Contact us

DashDevs Case: The Power of Plaid Integration

DashDevs team and I were working on a revolutionary B2B2C budgeting app to improve financial management for freelancers in the digital economy. This solution enables users to manage their personal and business finances with ease. 

One of the critical challenges in developing this financial solution was ensuring seamless and secure access to users’ bank accounts for accurate financial insights. This is where we decided it was time for Plaid to step onto the stage. Plaid is our assistant who ensures users can securely connect their bank accounts to the app without sharing sensitive login credentials.

Here’s how Plaid’s integration helps to enrich the budgeting app’s functionality:

• Enhanced budgeting. Plaid’s secure data access gives users a comprehensive view of their financial landscape, helping them create and manage budgets effectively.
• Investment tracking. Users can effortlessly monitor their investments, analyze portfolio performance, and make informed financial decisions with Plaid’s support.
• Streamlined debt management. Plaid’s data connectivity enables accurate tracking and management of debts and provides insights into debt payoff progress and strategies to become debt-free.
• Seamless tax estimation. With Plaid, users of this product can estimate income taxes accurately, encouraging better financial planning and ensuring compliance with tax obligations.
• Reliable cash flow insights. With Plaid, business owners can offer real-time cash flow tracking, access profit and loss statements, and gain valuable insights into their company’s financial health.
• Convenient payment processing. Plaid financial services simplify payment processing and let businesses receive payments from clients securely and conveniently.
• Cryptocurrency integration. Thanks to Plaid, the app seamlessly integrates with crypto wallets, allowing users to manage and track their cryptocurrency assets alongside traditional finances.
• Empowering financial education. Plaid’s data connectivity enriches the app’s financial education center, offering budgeting tutorials, financial literacy resources, and best practices to help users enhance their financial knowledge.
• Robust retirement planning. Users can plan their retirement using Plaid’s secure access to their financial data from different sources. This feature makes them feel well-prepared for their financial future.
• Peer comparison insights. Plaid’s data connectivity enables users to compare their financial standing with those with similar income or budget levels, gaining valuable insights into their financial position.

As you can see, we decided to go with Plaid services for integration because it’s an all-in-one solution. It takes care of many tasks, simplifies feature implementation, and keeps risks at bay. With Plaid, the developers’ team didn’t have to spend precious time connecting to each bank separately to gather data. Plaid handles all that heavy lifting efficiently. Consequently, our client saved both time and money and got a secure solution covering many essential tasks.

Explore B2B2C budgeting solution case study

Final Take

To wrap things up, data aggregators play a vital role in the fintech landscape, and Plaid is a shining example of their importance. Plaid is a valuable business partner with its extensive reach, top-notch security, and seamless integration. In the fintech world, having the right partner, like Plaid, can be the key to unlocking your product success.

Entrust your fintech project to DashDevs. With more than 13 years of experience and over 500 projects completed, our experts are ready, willing, and able to handle the integration of data aggregators or any other of your business needs.

Contact us