Analyst pans online aggregation

Most financial services firms with online aggregation services should cut their losses and shut them down, because customers’ privacy concerns have resulted in slow adoption rates and, in turn, a lack of ROI, industry analysts say.

Forrester Research Inc. in Cambridge, Mass., published a report last week that says only 1 percent of U.S. and 1.5 percent of Canadian online households used aggregation services in the first quarter of 2002. Aggregation is the pooling of a customer’s accounts from various institutions onto a single Web page for more comprehensive financial planning and ease of use.

The promise of aggregation was the opportunity to cross-sell products to customers using information gleaned from their various accounts and to sell online financial planning tools and advice.

But according to Forrester and other research firms, few customers are willing to share passwords and personal identification numbers to access a competing firm’s accounts because of privacy concerns.

“If you’re trying to sell it to a target audience that doesn’t participate, what’s the point?” asked David Furlonger, a financial services analyst at Gartner Inc. in Stamford, Conn.

The vast majority of banks use application service providers such as Yodlee Inc. in Redwood City, Calif., S1 Corp. in Atlanta and CashEdge Inc. in Milpitas, Calif., to host their aggregation sites. Yodlee is the clear leader, with an 80 percent market share. Yodlee acknowledged that only 44 percent of its enrolled aggregation customers are active but said that number is misleading if taken out of context. Yodlee also said it recently renewed the contracts of five of its top banking and brokerage clients.

“Online banking has about a 30 percent active-customer rate. Forty-four percent in the online world is pretty good,” said Jim Taschetta, chief marketing officer at Yodlee. He said the Forrester report ignores recently released business intelligence tools that allow banks to use customer data to upsell and cross-sell.

Catherine Graeber, author of the Forrester report, said that even with tools like Yodlee’s, “you get back to the problem of ‘Do I have enough data to mine?’ ”

Palm Beach Gardens, Fla.-based VirtualBank, one of the earliest adopters of aggregation services from VerticalOne Corp. and Capital One Financial Corp., abandoned its aggregation plans because the ROI was almost nonexistent, according to Forrester.

“People would fall off and not use it farther down the road. When we cancelled it [five months ago], we got very few disgruntled customers,” said Courtney McCashland, executive vice president of corporate development at VirtualBank.