Account aggregation, a consolidated view of a consumer’s financial accounts, will likely attract and retain customers by driving traffic to the Web sites of organizations that offer the service, but it may not be the golden egg of the online financial world, according to Forrester Research.
Account aggregators rest their hopes on collecting a gold mine of data from consumers for cross-selling. But a report from Forrester found that low customer adoption, high vendor costs and firms’ inability to mine that data will prevent firms from turning aggregation into profits.
“Financial firms are blindly rushing into aggregation without a solid business model — and they won’t succeed,” said Catherine Graeber, senior analyst at Forrester. “Few firms have the right attributes to offer it successfully. Even the ones that pass the test to offer aggregation won’t profit from it as a stand-alone service.”
Why then are firms from banks to brokerages to Internet portals diving into the aggregation pool? Forrester says it’s a fear of losing customers and falling behind the competition. Unfortunately for such firms, the idea of account aggregation is a bit advanced for most consumers, who don’t consider their financial lives to be complex enough to warrant aggregation. Furthermore, interest in aggregation drops when consumers are told that they have to relinquish their online account user name and password to a provider. Forrester found that only 7 percent of U.S. online households are interested in aggregation and are unconcerned about giving someone access to their financial information.
Concerns about consumer attrition are unwarranted because the proclivity to switch firms is low. Only 3 percent of consumers with term life insurance and 2 percent of those who have brokerage accounts said they may switch providers. Financial products are not impulse purchases — nearly one-third of online consumers who have applied for a mortgage this year researched it online.
According to Forrester’s cost model, most firms that offer account aggregation will fail to turn a profit within the first three years. Currently, vendor fees start at more than $70 per user and fall to about $36 after three years, leaving firms unable to break even. To cover their costs, firms would need to cross-sell more than two additional products to each aggregation customer over a three-year period. Of the firms Forrester interviewed that currently offer aggregation, none has analyzed the collected data and made an offer to a competitor’s customer.
“Only a small handful of firms, such as midtier brokerages, have the right elements to overcome ROI hurdles,” Graeber said. “They must have the right customer base, strong product and technology development capabilities, and a commitment to open finance. Successful firms will use the data to provide personalized financial products that solve the needs revealed by the aggregated data.”
Forrester interviewed senior executives at 45 financial services firms for its report. More than one-third of the firms already offer aggregation, while another 38 percent plan to offer it by the end of 2003. Fifty-one percent of the respondents believe that an increase in customer retention will justify the investment.
Other research firms have been more optimistic of account aggregation’s future in the financial services industry. Datamonitor found that 49 percent of online banking customers will be managing their affairs using an account aggregation service by 2005, when there will be 121 million online banking customers in Western Europe and the United States.
A study by Gomez, Inc., found that account aggregation is gaining momentum, but also recognized that significant changes need to occur before widespread consumer adoption is achieved. More than 25 percent of consumers are likely to embrace aggregation when it is sponsored by their primary bank and integrated into the bank’s overall offering, Gomez found. Further, 28 percent of high net worth investors are likely to switch institutions if their firm does not offer aggregation services.