Fintechs make platforms that help you organize your financial records. You may have a checking account at a traditional bank. Maybe you also have a high-interest savings account at an online bank, a stock brokerage account, and a retirement savings account. You might also have a mortgage on your house, a credit card account, and other investment accounts and personal loans. To get a full view of your financial accounts, you could log into each account separately and export the records into another app. Or a fintech platform could handle this process for you. Intuit’s Mint is one example of a platform like this. Another example is Personal Capital. Yodlee, a subsidiary of Envestnet, makes software that helps these personal finance platforms collect this data.
Personal finance platforms are easy to use. Accounting software may require you to upload financial records yourself. Personal finance platforms can automatically extract data from linked accounts and update your records. Originally, these platforms asked you for your login credentials to perform this service. With your password and user name, the platform logged into each account and scraped your records. It used the data to produce an overview of your finances. But now, banks such as JPMorgan Chase are blocking the scrapers and replacing them with open banking APIs.
Why Banks Don’t Like Scraping
Account scraping violates banks’ policies. Banks don’t want any other service to have direct access to your account. One reason for this policy is security. If a personal finance platform was hacked, the hackers could steal login details for your bank accounts. Another reason is efficiency. The scraper software may collect your data, and its other customers’ data, at the same time. Meanwhile, the bank doesn’t expect all of its customers to log in at the same time. As a result, the scraper places a huge load on its systems.
If the bank’s using machine learning software to defend itself against hackers, the scraper’s activities may even look like a denial of service attack. The bank might block the scraper from collecting account data, even if its customers have given the personal finance platform data access rights.
Banks also don’t like scraping because personal finance platforms use it to compete against them. If you have accounts at multiple banks, the platform might use your data to find you better deals. You might be able to get lower insurance rates, higher interest rates on your savings account, or additional borrowing capacity. The platform may even help third-party banks generate leads by sending your financial data to sales reps at another bank. But banks aren’t the only firms that can use the scraped data.
Scraped Data Provides Market Insights
If you own a grocery store, a clothing shop, or another type of retail business, scraped data can show you what to sell. Companies like Yodlee can show you what your customers bought at other stores. These platforms can tell you if a shirt, shoe, or suit is a hot seller for your competitors. And these fintechs scrape actual purchase data. They offer real-time insights that other business data providers don’t have. If you own a clothing store, you can see what shoppers are buying this season instead of what sold well last season.
Investors also benefit from scraped transaction data. Instead of using analysts’ estimates, or projections provided by a company’s CEO on an earnings call, you can see actual purchase data. That makes predicting quarterly earnings a lot easier. And this data isn’t provided by the company itself, so it doesn’t count as insider trading. Again, you don’t have to wait three months for quarterly reports either. While some restaurants and retailers provide monthly sales reports, fintechs can provide real-time same-store sales data.
Hedge funds can use this data for trading because they can see how well actual sales compare to projections. Grocery stores can use it to develop private label products that compete with top sellers at other stores. Private equity firms and serial acquirers can use it to identify buyout targets that make popular products. But now banks are updating their platforms to make collecting this type of data harder.
How Open Banking Improves Privacy and Security
The European Union’s PSD2 directive shows how banks can protect their customer data while still giving personal finance platforms the data they need. This open banking rule encourages banks to provide their data to fintechs through an API. While it may sound like this policy makes it easier for fintechs to compete with banks, it actually encourages banks to partner with fintechs. The fintechs will receive tokens that contain financial data instead of logging into bank accounts directly. Without an open access rule, banks might not open up their systems, giving fintechs an incentive to continue scraping account records.
Open Banking isn’t just happening in the European Union. JPMorgan Chase signed a data-sharing agreement with Yodlee in December 2019. Yodlee will no longer scrape bank account details from Chase accounts. Instead, Chase customers can give Yodlee access to specific bank accounts, such as checking and savings acounts. Chase will then send Yodlee tokens containing the relevant data, which Yodlee can then send to personal finance platforms such as Mint and Personal Capital.
With this system in place, personal finance platforms won’t need your bank account credentials anymore, improving account security. You’ll still have to log in to your bank account to use these services, but you’ll log in through the bank’s web site, not the personal finance platform. Additionally, Chase has made other updates to its banking platform. You’ll be able to see a list of fintechs that have access to your banking records when you log into your bank account.
Open banking helps you manage your accounts at multiple banks while securing your login details. You’ll still be able to use personal finance software to update your accounting records. And you’ll still be able to receive custom financial advice, including tips about better deals offered by other financial firms. However, you’ll log into your bank account, and other financial accounts, directly instead of giving your credentials to a third-party service.