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Is it really so smart to make your finances an open book?: A new breed of personal finance apps is making it easier to keep track of your money across multiple accounts. Many boast of being 'free'... but there is a high price to pay in terms of your privacy, says Michael Scaturro

July 27, 2014

Michael Scaturro



American billionaire oil magnate J Paul Getty once said, "If you can count your money, you don't have a billion dollars." Yet even for us non-billionaires, keeping a handle on how much cash we have can be difficult. Keeping a record on paper or on a spreadsheet and manually noting every single purchase and expenditure is time consuming. Some banks offer fancy online visualisations of your current account. Others will send you text reminders when your funds drop below a specified level. But when you hold accounts at different banks - not to mention credit cards, store cards and all the rest - the usefulness of these services pales.

You might be pleased to hear that this situation is beginning to change. It is becoming possible for users to see - in real time, on one screen - all their account data at different financial institutions. The formal name for this service is "account aggregation". It's been around in the US for nearly a decade but is now making a splash in the UK thanks to a plethora of new - and often free - apps for iPhone and Android devices. The apps aim to help you answer basic questions about your finances - Am I overspending at Waitrose? Do I need to cut back on eating out? Has joining Amazon Prime been a false economy?

Besides providing useful insights, the free apps are easy to set up - just enter your online banking credentials and you're done. But there's no such thing as a free lunch, and this may explain why they're not catching on as quickly as they might. A look at the most popular UK smartphone banking apps reveals that while all seek to collect large amounts of financial data on their users, not all companies treat your data the same way. While some app providers earn money by charging you to use their services, "free" app providers earn money by essentially selling your data.

Britain's most popular personal finance app is OnTrees. The free iPhone app aggregates credit card, loan, billing and current account data to show users how they are spending their money. Money Dashboard is another free app offering a similar service. Both apps - like nearly all UK banking apps - run on a US-based platform called Yodlee, a major data-cloud service provider to global banks. It also sells data feeds of UK bank customers to UK app startups that hope to make money by selling insights into your spending habits.

But not all UK banks use Yodlee, and if that's the case the apps will ask you for your bank account log-in details and pass this data on to Yodlee, which will collect (or "scrape," in industry parlance) account information from your online banking platform, then save it on Yodlee's servers. Yodlee's data - both the direct bank feeds and its screen scrapes - are updated many times a day, and may even be real-time in some cases. Yodlee feeds this to UK app providers such as OnTrees, which crunch the numbers and then send those impressive pie charts and graphs of your spending through the ether to your iPhone.

OnTrees says its free app has helped thousands reach their savings and spending goals. But if you think OnTrees and its ilk are altruistic financial fairy godmothers, think again. If you read the privacy policies of OnTrees or Money Dashboard, it's clear that in exchange for their free apps, you are granting them access to your personal financial data. Or, more precisely, a licence to monetise your data as they see fit.

OnTrees's privacy policy says it will analyse your bank data "to provide information about third-party products or services that you might find interesting; and use the content to create and analyse aggregated data about their users provided that you are not identifiable from the aggregated data". Money Dashboard's privacy policy is clearer: "We also use personal information in performing statistical analysis of users' behaviour as a whole; and to help in the creation of anonymised statistical data which we may use at our discretion (including licensing to third parties)."

Charlotte Oates, marketing and communications manager at OnTrees, says her company is trying to strike a balance between providing users with a free service and generating revenue. "At the moment we're not sharing the data with anyone because we're in the early stages of our business," she tells me.

But OnTrees - which was acquired by financial service comparison site Moneysupermarket in April - might eventually leverage user data to sell financial products through Moneysupermarket, says Oates. Under this scenario, OnTrees would collect a commission on any sales leads that it might generate.

"There's a dashboard in OnTrees that shows how much money has come into your account over the last 30 days and how much has gone out," Oates explains. "If we see that over the past 90 days more money has come into someone's account than gone out, we could tell the customer 'why don't you think of opening one of these savings accounts?' That's the sort of recommendation we plan to make. But it's not something we are currently doing."

Jeffrey Chester of the Centre for Digital Democracy is sceptical of OnTrees and its parent company, Moneysupermarket. "Whatever OnTrees is saying needs to be looked at in the context of what its owner, Moneysupermarket, is actually doing," Chester says. "Its business model today might very well be narrow, but it is part of a larger financial apparatus that's designed to sell your data. These apps are digital Trojan horses. They are promising you the convenience of an effective online tool but they are really there to spy on you and engage in predatory lending practices, which the UK has a large problem with."

While apps like OnTrees remain free, the value of such companies grows with every additional bit of data they collect. And although there are not yet any global standards for attaching a monetary value to data, this seems likely to change. As a World Economic Forum report pointed out some years back: "Personal data will be the new 'oil' - a valuable resource of the 21st century. It will emerge as a new asset class touching all aspects of society."

Oates at OnTrees agrees: "Data is a huge asset right now. It's absolutely a marketable asset. When we originally set up the business we knew that the data we would be getting from our customers would be very valuable."

But she says the company risks alienating its users if it uses the data indiscriminately. "People in the UK care a lot about privacy. A lot of our customers call us to ask how we will use their data. I think there are big concerns."

App makers might want to adopt clearer and more straightforward data usage policies to address privacy concerns. A good place to start is to do away with the term "anonymised statistical data" - a prevalent but essentially meaningless term that appears over and over in apps' terms of use. Professor Latanya Sweeney of Harvard University proved the term meaningless more than a decade ago when she demonstrated that 87% of all Americans could be uniquely identified using only three bits of information: their postcodes, birth dates and gender. So now imagine how much these free apps might know about you if you give them access to all your credit cards, bank accounts, and loans.

As UK finance app developers consider ways to make money from the vast pools of data they hold on users, they are closely following how a Zurich-based startup is moving ahead with its own monetisation plans. The Numbrs app - available only in Germany at the moment - resembles OnTrees, with one added feature: you can make payments and move money to and from your bank accounts from within the app. The company says it has begun testing ways to use the trove of data it collects on its users to help insurance companies better assess risk when selling health, life, and liability insurance policies. So if you're spending too much money at McDonald's, or visiting your local pub too many times a month, Numbrs will know - and so will your insurance company.

Charlotte Oates of OnTrees said she doesn't see her company going in this direction because of privacy concerns in the UK. "That's probably not something that we would do at the moment. There are big security concerns in the UK, and it's a very different market. People here are still a little hesitant to move their money around with apps and use their data this way."

But not all UK finance apps seek to monetise your data. Xero, a cloud-based accounting software provider, promises to save small-business owners time and headaches by storing their bills, invoices and account data in its cloud - for a monthly fee.

"What most small businesses lack is a way to easily upload their banking data," Gary Turner of Xero told me. "They have usually had to enter the data manually or download a CSV file and then key it into accounting software."

Xero collects financial data through Yodlee's platform as well as through direct feeds to banks. But since it charges pounds 9.25 a month, it doesn't have to sell users' data - though Xero does collect data on them so that it can provide "relevant insights" to its small-business users, Turner explains.

"We found, for example, that customers who put 30-day payment terms on their invoices typically get paid in 45 days," Turner says. "We wanted to share this insight with our customers. We were able to tell our customers, 'If you want to get paid in 30 days, put 15 days on your invoices'."

Clearly, UK customers should read privacy policies of apps and weigh the risk to their privacy before downloading. Yet in some cases, merely logging into your online bank account means you are interfacing with Yodlee's platform, since so many banks use Yodlee. Should you worry about Yodlee delving into your data? Robert Courtneidge, a mobile payments specialist and lawyer representing Yodlee in the UK at LockeLord LLP, says not. "Yodlee is a technical service provider on behalf of the banks," he explains. "They present themselves as a company that can hold your data more securely than your bank can."

Services like Yodlee and its competitors are regulated in the US by the Federal Financial Institutions Examination Council. The EU, for its part, is working on a payments directive that will regulate aggregate services like Yodlee if the next EU parliament votes to approve the draft rules.

Whether or not the regulatory landscape adapts, Courtneidge thinks aggregation is here to stay.

He also sees a new trend emerging: simple smartphone apps that allow people to send money to friends, family and local businesses. Such apps - originally developed for customers without bank accounts in African markets - are getting a push in Europe from banks and private equity investors. The idea is that they would replace cash for small purchases, and allow for integration with personal finance apps, so users could gain a clearer understanding of their spending.

In April major banks in the UK began supporting Paym, a "peer-to-peer (P2P) payments system" app that allows people to send money using only a mobile phone number. But is it really easier than cash? Courtneidge isn't so sure: "At this point it takes longer to send five quid through one of these mobile apps - both people have to sign up for them - than simply giving someone cash."

However, banks saw Bitcoin's surge in popularity as a wake-up call. Their response has been to push their own P2P systems to traditionally cash-only small businesses - such as tanning salons, pop-up shops and corner stores - that might have considered accepting Bitcoin. Courtneidge thinks P2P startups will try to make mobile payments an appealing and hi-tech replacement for cash by making them extremely easy to use - and even wearable. "P2P will probably be in all wearable technology," Courtneidge tells me. "It will take the form of a wristband or a retina chip in your eye. That's where it's all headed."

Yet as banks and P2P startups make the case for a cashless society, more people in the UK are actually turning to cash. For many, doing business with currency provides just as clear an insight into one's personal finance situation as do apps. Indeed, a recent report by the Payments Council and Link, which runs the UK's cash machines, found that cash payments still accounted for 52% of all payments in 2013. Which lends credence to the idea that even in an age of mobile wallets and smartphone finance apps, cash may still be king.

Captions:

SHOPAHOLICS BEWARE Your phone could soon warn you if you're overspending.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Observer (UK)


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