Many firms today believe that account aggregation — a consolidated view of a consumer’s financial accounts — will attract and retain customers by driving traffic to their site and collecting a gold mine of data for cross-selling. However, according to a new Report from Forrester Research, Inc. (Nasdaq: FORR), low customer adoption, high vendor costs, and firms’ inability to mine the 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.”
Fear of losing customers and falling behind the competition is driving firms to implement account aggregation. But most consumers don’t consider their financial lives to be complex enough to warrant aggregation. Furthermore, interest in it drops when consumers are told that they have to relinquish their online account user name and password to a provider. In fact, only 7% of US 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% of consumers with term life insurance and 2% of those who have brokerage accounts say 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.
Additionally, according to Forrester’s cost model, most firms 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,” added Graeber. “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.”
For the Report “Account Aggregation: The Elusive ROI,” Forrester interviewed senior executives at 45 financial services firms to understand their plans and business models for aggregation. More than one-third of the firms that Forrester spoke with already offer aggregation, while another 38% 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.