- Data aggregators sit between third-parties like Robinhood and Venmo, and banks.
- Currently, banks and aggregators like Plaid and Yodlee sign independent agreements to permission data access.
- Akoya, an aggregator backed by 12 financial institutions including Citi, JPMorgan, and Wells Fargo, is rolling out its API-based data sharing platform. US Bank is the first bank to sign on.
- It's betting that its network approach will accelerate the industry's move away from screen scraping toward a unified API standard.
- Visit Business Insider's homepage for more stories.
Consumers' financial lives are increasingly fragmented, and banking has become 'unbundled.'
Third-party apps like Venmo, Betterment, and Robinhood have been chipping away at the core services offered by banks. And they've reached an undeniable scale, with millions of users turning to their platforms to send payments, trade, and invest.
But these apps can't function without financial data that still sits with the banks, like customers' account and routing numbers.
Data aggregators like Plaid and Yodlee were born out of the need to efficiently distribute data between fintechs and banks, serving as the the pipes behind the fintech revolution. However, a new competitor, backed by the banks themselves, is making a push to set a common data-sharing standard.
Read more: Execs from Plaid and Yodlee explain how new data-sharing rules will dictate the future of how banks and fintechs work together
Originally created at financial-services giant Fidelity in 2018, Akoya was spun out earlier this year. Along the way it nabbed backing from 12 financial institutions, including Citi, JPMorgan, and Wells Fargo.
On Monday, the startup notched its first big client win. US Bank, which is also an investor, announced it would be the first bank to sign on to the data-sharing platform.
The idea of the network is to provide a single integration for a bank to link with third-party apps and other data aggregators. As a result, banks won't have to manage integrations individually.
US Bank sees Akoya as a market-wide solution that could help accelerate the adoption of a more standardized data-sharing ecosystem.
"We don't view Akoya as just another aggregator. The reason we're an owner of Akoya is because this is an industry issue," Gareth Gaston, US Bank's chief digital officer for platforms and capabilities, told Business Insider.
Banks' willingness to work with data aggregators has varied over the past several years. But ultimately, all players — the banks, data aggregators, and third-party apps — are coming to the table to establish industry standards to help facilitate data sharing.
Akoya will compete with existing aggregators like Plaid, Yodlee
While Akoya is just starting to roll out its API aggregation product, it's not alone. It'll compete with other players like Plaid, Finicity, and Yodlee. For now, US Bank's agreement with Akoya won't have an impact on its existing deals with other aggregators in the market.
"It's too early to say, to be honest," said Gaston in reference to whether partnering with Akoya would impact existing data-share agreements.
Read more: Plaid has been quietly building a new payments tool and Visa wants to buy it to squash competition, US antitrust regulators say
Akoya can act as an added layer between data aggregators and banks or serve as the aggregator itself. Aggregators already in the market have their own agreements with thousands of banks, and it's early days for Akoya's network.
US Bank is already in conversations with players looking to access its data via Akoya, Gaston said. As for the other data aggregators, in time, Gatson expects both US Bank and Akoya will participate in broader industry-wide conversations.
"The conversations with some of the bigger, more established entities will happen over time, and likely wouldn't just be a US Bank-to-that-entity conversation," Gaston said. "It would be with Akoya in that conversation, as well."
Akoya's push to establish itself as a major player comes when current data aggregators in the space are very much in flux.
In January, Visa announced plans to acquire Plaid for $5.3 billion. That same month, lawmakers called on the Federal Trade Commission to investigate whether Yodlee was selling data without the necessary consent.
In June, Mastercard followed suit with an offer to buy Finicity, another data-sharing fintech, for $825 million. This month, the Department of Justice filed an antitrust lawsuit against Visa over its planned acquisition of Plaid.
The industry is making a big push toward API-based data sharing
The data industry is largely moving away from screen scraping and toward API-based connections.
Screen scraping is when third-party apps store customers' login information for their bank accounts to use down the line to continue accessing data. An API-based approach, conversely, means that apps and data users don't store that sensitive user information in any static way.
Via the API, apps can connect into permissioned bank data on-demand, which experts say is more secure and curbs the risk of data breaches.
Read more: We talked to Mastercard's incoming CEO about why the card giant is spending $825 million to buy financial-data startup Finicity and how it compares to the Visa-Plaid deal
Akoya isn't the only player pushing against screen scraping. The Financial Data Exchange (FDX) is an industry-wide group that sets API-based tech standards for financial-data sharing. Its members include banks, credit-card providers, credit bureaus, and data aggregators.
Plaid and Yodlee are also pushing for API-based data pipes. Many banks have already signed bilateral agreements with both aggregators.
For smaller banks, there are solutions like Plaid Exchange, which is a sort of API-in-a-box that banks without the resources to set up data pipes themselves can use.
"We're certainly in the process of eliminating screen scraping," Gaston said. "What we're seeing in the industry is the beginning."
Industry-wide API standards curb the risk of breaches
Despite the progress, fragmented agreements and connections mean that data access standards are far from uniform. Beyond being inefficient, industry players say the silos can introduce more risk into the system.
Regulators have taken notice. In October, the CFPB issued its advanced notice of rulemaking, seeking to clearly define the scope of consumer data access rights laid out in Dodd-Frank.
"The way it's being tackled today is that a number of large players are negotiating individual bilateral agreements with recipients," Stuart Rubinstein, CEO of Akoya, told Business Insider. "They are complicated, and they are very extended, long, and expensive negotiations."
Unclear liability frameworks are often cited by banks when they tighten up their data permissioning through these agreements. Should a third-party app prove to be fraudulent, the banks, not data aggregators, are held liable for the breach in many cases.
"Whoever causes harm in the system needs to be responsible for that harm," Rubinstein said.
But the move away from screen scraping toward APIs offers more security, in which case liability becomes a second-order concern.
"The faster we take the risk out of the system, the less we have to rely on the liability framework," Rubinstein said. "So taking the risk out of the system should be a priority."
Learn more about the financial services industry.
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