Guide to Financial Data Aggregation and Open Banking

The world of fintech is dynamic and unstoppable; new ideas and products constantly emerge, catering to entrepreneurs, startups, and businesses seeking to enhance their offerings. If you’re here, you likely have an idea needing realization. Or maybe you aim to refine an existing product to perfection.

I’m Vladyslav Slipchenko, and I am ready to share my expertise on data aggregators with you—what they are, how they function, and why they are indispensable in modern business. Whether you’re brushing up on your knowledge or diving into this topic for the first time, I’m here to help. I’ve spent over four years working with different technologies, assisting DashDevs customers in product development.

I have worked on dozens of projects, including fintech initiatives, insurance ventures, educational platforms, and entertainment products. Over the years, I’ve been deeply involved with projects that required working specifically with the banks’ and financial institutions’ data. 

Now, I’ll be sharing with you what I would like to hear from an experienced expert at the beginning of my work with bank data to explore what data aggregators are, why they matter to you and your business, and how they can benefit your ventures. 

In truth, many people are unfamiliar with data aggregators and how they affect their finances. Financial institutions often lack information about data aggregators, making explaining вthe pros and cons to their customers difficult. So, it’s time to set the record straight.

What are Data Aggregators and Aggregation?

In the industry of finance, managing data is a must. A data aggregator is a service that makes it more accessible.

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 and summarizing tons of data into a format that’s straightforward to work with.

The magic of data aggregation is that it makes it quick and easy for analysts to access and analyze all gathered data. Instead of going through each piece of data individually, aggregated data is like a summary that makes everything more efficient.

Once the data is gathered, it’s stored in a central place where your team can use it for analysis and decision-making.

The main feature of data aggregation for your product users is letting them see all their financial information (like bank accounts, credit cards, loans, and investments) in one place. It makes managing money much more effortless.

A data aggregator connects financial accounts to fintech partners so they can use clients’ data to provide their services. For instance, Venmo uses Plaid software to link with banks for money transfers. When you sign up for Venmo, you allow them to access bank accounts through data aggregators.

How Do Data Aggregators Work?

Imagine you’re a bank or credit union aiming to provide customers with a comprehensive overview of their finances – not just the information they can access from a single account but a compact view from multiple sources. That’s where data aggregators come in.

You may have a mobile app or an online banking tool. It lets your users track all their spending, whether from their checking, savings, or credit card accounts, no matter where those accounts are held – inside or outside your fintech solution.

With this tool, your customers can set spending limits. It’s like a traffic light system—green for good, yellow when they’re getting close to their limit, and red if they’ve gone over it. They can also use it to pay off debts and plan their finances.

Data aggregators also help you suggest the right products and services to your customers. They can tell you if a customer has a car loan with a competitor or what interest rates they pay on a mortgage elsewhere. With this information, you can offer them deals they’ll find appealing.

On top of all that, data aggregators help you stay on the right side of the law by ensuring you’re meeting regulatory requirements like the Bank Secrecy Act. It’s like having a compliance assistant that keeps you in check.

So, data aggregators are like your trusty partners, helping you provide better services to your customers and keeping your financial institution running smoothly.

Who and Why May Need Data Aggregators?

Startups and fintech firms are now directing their efforts toward delivering enhanced customer value. The primary aim is to simplify the banking process and other related services, making them as convenient and hassle-free as possible.

Data aggregators make it easier for fintech businesses to collect, process, and present complex data from various sources. They prove indispensable for products that incorporate features reliant on users’ actual financial data when that data originates from various financial institutions. This tool is precious for startups and businesses striving to simplify their services and deliver improved solutions to their customers.

The global account aggregators market is expected to grow even more and reach around $2.14 billion by 2025. This growth is mainly driven by the increasing demand for personalized financial services, the growing popularity of digital banking and financial transactions, and greater awareness of the importance of data privacy and security. The market is estimated to grow at about 11.3% each year during this period.

The approach of open banking used by data aggregators is consistent among fintech leaders like Stripe and PayPal, offering one-click payment gateways for businesses. What ties them all together? A shared dedication to enhancing customer satisfaction by minimizing the steps required to achieve any desired outcome. So, if you are a young startup, business, or entrepreneur with great ideas seeking efficient solutions, you should try collaborating with a data aggregator to fuel your growth.

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.

They usually worrying about the following things:

• 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. 

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.

The key takeaway from this information is that, as a business owner, fintech entrepreneur, or startup founder, you don’t need to be overly concerned about the risks associated with data aggregation. Partnering with a data aggregator can significantly enhance your clients’ user experience while saving you costs and development time for your product.

It’s essential to understand that any issues or risks that may arise, such as information leaks or data misuse, are not your direct responsibility. You won’t be dealing with these problems firsthand and have limited influence over preventing them. Instead, if you are looking for the answer to the question ‘is Plaid safe for banking or are any data aggregators safe?’, your focus should be on two specific risks:

1. Data Transfer: Your product is an intermediary and doesn’t retain user-transmitted data. Therefore, all data transmission and processing processes must adhere to jurisdictional requirements and standards.
2. Provision of Financial Services: Regulations governing financial services vary depending on location. It’s crucial to adapt your approach to meet specific regulatory requirements. This may entail creating user agreements and other legal documents to ensure compliance with the law.

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.

So, what to look for in a data aggregator?

Top 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 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, 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.

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 it 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.

The way that we think about our products is that we are very consumer oriented. So our mission is to make money easier for everyone and truly we think about how we get the best possible products in the hands of consumers.We spend a great deal of time building an ecosystem, enabling developers creating a fintech landscape such that anyone can create any financial product they want to. Then leads to more products that consumers wish we think is a way. 

“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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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).

DashDevs Case: The Power of Plaid Integration

Let me tell you about my personal experience working with Plaid during product development for one of DashDevs’ clients.

DashDevs team and I were working on a revolutionary B2B2C app to improve financial management for freelancers in the digital economy. This budgeting solution enables users to manage their personal and business finances with ease. This app empowers freelancers, business owners, and many others to take control of their financial journey without needing an accountant, from budget creation and tax estimation to investment tracking and net worth analytics.

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 we made Plaid’s integration to enrich the 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.

Summing Up

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.

Need Help with Fintech Product Development?

Please don’t hesitate to reach out if you have any questions or need assistance. We’re here to help you navigate the complex yet exciting data aggregation and app development industry challenges, from the product discovery phase to the market launch.