Are we ready for account aggregation?

Online financial transactions have become almost commonplace among the richest third of Australian society. Mike Taylor asks whether the Australian populace is ready for the next step into account aggregation and whether the industry is ready to accept the changes it will bring in relationships.

Perhaps it is better not to ask whether Australians are ready for the next step in online financial services. Perhaps more to the point, it is better to ask whether Australia's major banks and financial institutions are willing to cooperate to create the appropriate physical and regulatory environment for account aggregation.

But first what exactly is account aggregation? It's a service already well entrenched in the US backed by the financial services industry which allows any account data that can be accessed online (PIN numbers included) to be held by a single aggregator. The aggregator then accesses each on-line account, whether it be a bank, an insurance company, fund manager, stock broker, cheque, credit card, frequent flyer points and then analyses (aggregates) your accounts.

Why would a consumer want to hand over their pin number to an account aggregator? The answer is so they can logon with just one pin and dramatically improve tracking and managing various accounts. The account aggregator service has the capacity to detail a cash position and liabilities. In other words, they provide a real-time picture of a person's total net worth.

Account aggregators have the potential to become extremely valuable sources of customer information as they build implicit information about Australian investors financial habits in manner never seen before.

So just where is account aggregation in Australia? According to Internet integration firm XT3, a number of Australia's largest financial institutions are already well into their account aggregation strategy, including ANZ, CBA, Suncorp Metway, AMP and Macquarie Bank. And Internet portal Yahoo has also just launched its account aggregation service.

XT3 principal John Morello says many of the major financial services players have the systems and web capacity to begin providing account aggregation services, but at this stage have opted against switching on.

At least a part of the reason for delaying the switch-on is their examination of the US experience and their knowledge that, once implemented, such services had the capacity to radically alter the relationship between traditional institutions and their customers.

"When you consider what account aggregation involves and the level of information that aggregators will need to hold, then privacy and security issues are certain to arise," he says.

Morello says it is also important to note that Internet savvy Australians are becoming more comfortable about the security of financial transactions conducted over the Internet.

"The padlock on your browser is the real telltale," he says.

"If you have this, you have a typically encrypted secure pipeline between your browser and the server irrespective of what path the connection may take via the world wide web.

"This secure pipeline means data going up and down the pipe (not unlike a clay pipe carrying water) is impervious to hacking. This beats handing your credit card over the counter (or sending cheques in the mail) any day as a more secure way to conduct business."

But Morello says a bigger issue than security is account aggregator's potential to fundamentally alter relationships with their clients.

"There is a lot of 'lazy' money sitting in traditional savings-type accounts that account aggregation services have the potential to unlock and generate a much higher rate of return," he says.

"If you examine the relationship that clients currently have with their banks and then consider the changes which will occur via account aggregation, then there must be a concern amongst banks that they are in danger of becoming commoditised," he says.

Initially in the US, banks had initiated legal action against aggregators and sought to periodically change navigation arrangements around their Web sites.

However the legal action in the US was quickly abandoned as the banks and financial institutions recognised the strategic benefits and moved to sign up their own customer base to such services.

So what does the future hold for Australia? Morello says the same consumer imperatives that drove the acceptance of account aggregation in the US will drive the service in Australia.

"We believe the key to its acceptance here will be the implementation of appropriate safeguards around the use of online account PINs and appropriate legal frameworks," he says.

"There are a range of issues to be considered, not least legal liability and the accountability of account aggregators in terms of the Australian Securities and Investment Commission's (ASIC) EFT code of practice.

"However we believe these are relatively easy to work through using techniques such as two PINs (one transactional, one view only). Once the technicalities are worked through account aggregation could be the real future of financial services on the Internet."

Mike Taylor is the ??? with Telstra