A new service from Yodlee Inc. uses the company’s online banking data-aggregation technology and its money-transfer software to provide the critical pieces of opening and funding bank accounts online.
Yodlee AccountOpening represents a strategic shift for an outfit long known for its ability to consolidate information about banks’ customers.
“We’ve spent a lot of time transitioning ourselves away from being a pure aggregation software company to being a pure financial services software provider,” said Peter Hazlehurst, Yodlee’s senior vice president of product development.
The new service, announced Monday by the Redwood City, Calif., company, incorporates its Instant Account Verification. Banks use that service to confirm that an applicant actually owns an account at another financial company by testing the online banking username and password he or she provides.
Like many of Yodlee’s offerings, Instant Account Verification is built on top of its aggregation service, which draws a customer’s information from accounts at multiple financial companies.
AccountOpening is more ambitious, Mr. Hazlehurst said. “We’ve taken the aggregation concept and applied it in an authorization-and-authentication mode,” he said. It accesses credit databases, verifies the ownership of outside accounts, and uses that information to fund the new account.
AccountOpening also uses challenge microdeposits to verify that the applicants own the accounts. It does this by making two deposits of under $1 to the customer’s account and asking him or her to verify the amount.
Mr. Hazlehurst that Yodlee is “a little bit of a latecomer to the market in this space.” Others already in it include CashEdge Inc. of New York, which “has been quite successful early on” in getting out there in new-account openings,” he said.
But Yodlee expects Account-Opening to help it catch up, and Mr. Hazlehurst said it is close to signing contracts with a large bank and two brokerages.
Archie Emerson, Yodlee’s general manager of funds transfer and account verification, said the service works with an external credit bureau database product to verify the identity of account holders by using data from a person’s credit history to compose challenge questions. If a bank does not already work with one, Yodlee will help its bank customers find one.
“We’re not inventing any new technology,” Mr. Emerson said. “We’re just trying to make that data available to them in a friendly platform.”
He said the Yodlee service can help people fund their new accounts by logging into another account and displaying the available balance, which can be transferred into the new one.
Though many banks offer online account opening services, “there are actually very few institutions that are doing full, end-to-end, paperless online account opening,” Mr. Emerson said.
Neil Platt, CashEdge’s vice president for sales and business development, said account applications are “a big and growing business for us,” and the Yodlee announcement does not “keep us up at night.”
“The business will get more competitive over time,” he said, but “we are the market leader in online account opening. This year we'll easily do one million applications.”
Dan Schatt, a senior analyst for the Boston market research firm Celent LLC, said Yodlee’s service is not a direct threat to CashEdge, despite its similarities. The New York company and Yodlee have moved “in very different directions, with CashEdge doing many more activities on the business-to-business side, he said, and Yodlee’s new service is focused on consumers.
The service is an important new step for Yodlee, though, Mr. Schatt said. “The capabilities here definitely go beyond aggregation,” he said. “They’re taking in all kinds of other data from third-party providers to offer a product that makes sense.”
Banks, he said, “are operating somewhat in the dark ages” in Internet account opening. “The way to lure people in is to make it easy for people to open up and fund an account.”
Gwenn Bezard, a research director at Aite Group LLC in Boston, said, “CashEdge has gotten some good traction over the past two to three years with their products, so it’s not a surprise to see Yodlee becoming more aggressive” with its own.
There is room in this market for both companies, Mr. Bezard said. Online, “the account-opening processes at many banks today are so bad,” he said. “Banks really have a demand for account-opening and funding solutions, whichever vendor can provide it.”
