Account Aggregation: What Is It, and How Does It Work?
Whether you’re tracking personal expenses or optimising your business’s cash flow, managing multiple financial accounts can be overwhelming. This is where account aggregation comes in.
When powered by open banking technology, account aggregation simplifies the process of tracking and optimising expenses by consolidating financial data from different sources. It gives individuals and businesses alike a complete overview of their finances.
In this article, we’ll cover what account aggregation is, how it works, the benefits, and how open banking facilitates the consolidation of financial data.
What is account aggregation?
Account aggregation is the process of collecting data from multiple accounts – such as bank accounts, credit cards, investment portfolios, and loans – in one place.
For example, an online banking service may provide a home page on which account holders can see information from all of their checking, savings, certificates of deposit (CDs), and brokerage accounts.
Consolidating account data gives both consumers and businesses a comprehensive view of their financial position in real-time.
How does account aggregation work?
There are five primary steps in the account aggregation process:
- User authorisation: The customer or business grants permission for an aggregator – e.g. a budgeting app or financial software – to access their financial data.
- Data retrieval via APIs: Banks and financial institutions provide secure APIs, which aggregators use to pull transaction data, balances, and account details.
- Data standardisation: The aggregator cleans and organises the retrieved data, ensuring consistency across different banks and financial institutions.
- Analysis and insights: AI and analytics tools process the aggregated data, providing insights such as spending patterns, cash flow forecasts, or fraud detection alerts.
- Display and integration: The aggregated data is presented in a dashboard – typically integrated into personal finance apps, business accounting software, or fintech platforms.
The result is a complete and transparent overview of your finances, whether personal or professional.
The benefits of account aggregation
Account aggregation comes with a wide range of benefits for both customers and businesses.
For customers, account aggregation offers:
- Complete financial visibility: Account aggregation provides a real-time, holistic view of all financial accounts, including bank balances, credit card transactions, investments, and loans.
- Better budgeting and expense tracking: Aggregation helps users track spending patterns and spot opportunities for saving money.
- Easier financial planning: Aggregated financial data makes it easier to plan for major expenses, retirement, or debt repayment.
- Time-saving and convenience: Instead of logging into multiple bank and investment accounts, users see everything in one place.
- Enhanced security: Encryption and secure APIs reduce the need to share login credentials across multiple devices.
- Automated insights and alerts: Many tools provide alerts for upcoming bills, unusual transactions, or changes in financial health, enabling customers to easily manage their finances.
For businesses, account aggregation provides:
- Cash flow management: Account aggregation allows CFOs and finance teams to track incoming and outgoing payments in real-time, leading to better cash flow forecasting.
- Improved financial decision-making: By consolidating accounts, businesses can analyse spending patterns and optimise budgets.
- Regulatory compliance and reporting: Automated data collection simplifies compliance with tax laws, AML regulations, and financial reporting standards.
- More efficient accounting and auditing: Aggregation reduces manual data entry, improving efficiency and minimising bookkeeping and reconciliation errors.
- Enhanced customer experience: Businesses offering financial services can provide customers with personalised insights, lending recommendations, or better investment options – all based on aggregated data.
- Fraud detection and risk management: Account aggregation helps identify suspicious transactions, improving financial security for businesses.
Account aggregation and open banking
Before open banking, banks and other European financial institutions could withhold account holders’ financial data from other companies.
However, with the passage of legislation such as the Payment Services Directive (PSD2) and its most recent update (PSD3), as well as the Payment Services Regulation (PSR), banks and financial institutions are now required to share appropriate financial information with third-party providers (TPPs) upon customer request.
Open banking enhances account aggregation by:
- Enabling secure and direct data sharing: Instead of relying on screen scraping—a legacy method rightly being phased out due to security concerns—open banking mandates that banks provide secure API access to customer data.
- Enhancing customer control: Through open banking, users can choose which services can access their data and revoke access anytime.
- Boosting competition and innovation: By making financial data more accessible, open banking encourages fintech startups to build innovative financial management tools.
- Improving compliance and security: Open banking frameworks (like the PSD2 and PSD3), enforce strict security measures, reducing fraud risks compared to traditional aggregation methods.
Read more about open banking in our explainer.
Want to learn more about the benefits of open banking for account aggregation?
If you would like to learn more about the benefits of using a payment method like Brite’s instant account-to-account payments, which uses the latest open banking infrastructure, contact our payment experts today to find out more information.
