Earlier this week, Envestment announced that it was acquiring Yodlee in a $590 million cash and stock transaction. The deal showed the value in a new form of shared data collection and distribution being used by financial firms to better understand their clients and speed up account openings. Gathered financial data includes payment transaction details, peer to peer loan types, and remittance money flow from partner consumer, banking and alternative finance firms.
Among its products include the instant account verification API. Also referred to as a ‘Banking API’ by KontoX, a European competitor of Yodlee, which itself was recently acquired by Kreditech in January, the API can be used by financial firms to authenticate and review its customer’s externals accounts. The product works similarly to firms using Twitter, Google or Facebook authentication to sign up and log into their sites, as well as scraping basic user information like their names and profile. For financial firms, the banking API allows customers to authenticate their accounts using their bank or brokerage accounts, which gathers verification information to better serve the end-user clients.
Among fintech firms, banking APIs have gained interest as a solution to both improve the customer onboarding process as well as learn more about their clients. Real world examples include P2P lenders that use the APIs of information coming from their customer bank accounts to gauge their creditworthiness. In addition, personal finance apps like Mint are using the APIs to connect to user bank and credit card transactions to analyze and provide tips where they can improve their spending and saving habits.
Applicable to the Forex Industry?
Providing basic user information such as a customer’s name and address, plus financial data of bank balances, the question is whether these banking APIs are also a match for the forex industry. According to Konstantin Rabin, Head of Marketing at KontoX, the answer is “yes.”
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Speaking with Rabin, he explained to Finance Magnates that many of the same characteristics of information being used by P2P lenders, such as to instantly verify user accounts as well as to learn more about their behaviors are necessary for forex brokers. As an example, Rabin stated that both sectors have requirements of Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures to onboard new accounts.
According to Rabin, by allowing customers to use their European- based bank accounts to sign up and authenticate their trading account, EU brokers are able to satisfy the identification requirement of the KYC process. Still required though is brokerage specific risk profiling, such as having new customers answer questions about their trading experience, knowledge of the markets, and net worth.
In regards to analyzing customer financial data, forex brokers can also benefit from analyzing customer data. By choosing to authenticate their brokerage account with their bank, customers are permitting third parties, such as brokers to access read-only information. Among existing use cases of fintech firms that are using APIs, the information is processed to learn how their products best fit their customers. Examples are matching borrowers with lenders or providing analysis of whether their existing investments and savings are being maximized and what product can be used to optimize their financial goals.
For forex brokers, Rabin cited that banking APIs can provide a support and retention role. Specifically, brokers are able to gather bank balance information which can be used to filter on which customers to focus.
While the system appears to make sense for brokers, satisfying their needs to better target customers with the potential of opening larger accounts and streamlining the onboarding process, it can be questioned whether banking APIs are a potential breach of client privacy. Rabin answered that when using any third party authentication such as a banking API or Facebook, customers agree to share their information. As such, for brokers and financial firms, this avails them to analyze their customer’s data as long as it fits within the parameters of better servicing their accounts.