What Is a Data Intermediary? Key Benefits and Why They Matter

The financial industry becomes more complex every day — and consumers want more from their financial providers. More personalization. More functionality. And, better use of their data. 

In fact, 53% of consumers agree they expect their financial provider to leverage the data they have about them to personalize their experience, according to MX research. Consumers also continue to rank the ability to see all of their accounts from various financial providers in one place as the feature they most want for financial wellness. And, they’re using this feature. When asked if they have used digital tools to bring their different financial accounts into one view, such as a mobile app or an online account, 41% of consumers say yes. 

To enable these connected, data-driven experiences, many financial providers partner with financial data intermediaries to deliver seamless connectivity options for consumers.

In this post, we will cover:

• What Is a Financial Data Intermediary or Open Banking Intermediary?
• Other Types of Financial Intermediaries
• What Is the Difference Between a Financial Data Intermediary and a Data Aggregator?
• Benefits of Financial Data Intermediaries
• Examples of Financial Data Intermediaries
• What to Look for in a Financial Data Intermediary
• MX as a Financial Data Intermediary

What Is a Financial Data Intermediary or Open Banking Intermediary?

An intermediary is an entity that facilitates the flow of data between two parties in a financial transaction. Within banking and financial services, a financial data intermediary, sometimes called an open banking intermediary, is a platform that mediates the data sharing between financial institutions and third parties. This open banking connection supports financial data aggregation and streamlines access to innovative and modernized processes.

In other words, a financial data intermediary, or an open banking intermediary, enables financial institutions to connect to consumer-permissioned data, make it actionable, and unlock the true value of data.

According to Forrester, open banking intermediaries provide the “connective tissue between financial product providers, such as banks and insurance firms, and third parties looking to innovate on top of open banking access.”

In the financial industry, data is paramount — making financial data intermediaries an important player in ensuring financial institutions can connect to data seamlessly and securely. 

With better insights from consumer-permissioned data, financial providers can improve the customer experience, identify opportunities to grow deposits, and inform key decisionmaking.

Other Types of Financial Intermediaries

Traditionally, a financial intermediary is a middle man facilitating financial transactions, sometimes referred to as a transactionary intermediary service. There are many types of financial intermediaries that can help in any process involving funds. Some of the most common financial intermediaries are:

• Banks: Every banking institution offers some type of transactionary intermediary service.
• Non-banks: Non-banks provide financial services without a formal banking license through transactions such as mutual funds.
• Investments: These intermediaries handle investment-related transactions through stock exchanges and brokerage firms.
• Financial Advisors: Similar to investments, financial advisors facilitate investment work and provide financial guidance for funds management.
• Payments: Payment intermediaries are the bridge that processes electronic and digital payments.
• Insurance: Insurance businesses facilitate work that lessens risk after receiving funds from their customers.

What Is the Difference Between a Financial Data Intermediary and Data Aggregator?

Financial data intermediaries and financial data aggregators are similar, but not completely synonymous. 

Financial data aggregation is the process of bringing together information from different financial accounts into a single place. Like a financial data intermediary, data aggregators enable consumers to connect and share their financial data with third parties. But the key difference lies in what happens to the data after it is aggregated.

Financial data intermediaries do not use any consumer information once it’s been aggregated. On the other hand, data aggregators sometimes will use consumer data for their own purposes — like selling that data for profit.

For example, FINRA warns that some data aggregators “could be storing all consumer financial information or security credentials in one place, creating a new and heightened security risk.” In addition, some data aggregators may use or sell consumer financial data in ways that go beyond consumer consent. 

At MX, we believe consumer financial data should only be used to ultimately benefit the consumer — and not used in ways that are purely value extraction or advantageous to an organization to the detriment of the consumer. These broader use cases that some data aggregators may choose to employ could go beyond that.

Benefits of Financial Data Intermediaries

Financial data intermediaries and the functionality they offer are possible because of today’s advances in technology. Financial institutions that partner with financial data intermediaries to streamline their data sharing processes can experience a variety of benefits:

Benefits for Financial Institutions

Gain a Competitive Advantage

According to MX research, 72% of consumers would likely seek out a different bank or credit union if their current provider couldn’t connect their financial accounts to financial apps or other online accounts. By offering connectivity through a financial data intermediary, financial institutions can keep their consumers from looking elsewhere for intermediary services and gain an edge over their competitors.

Break Down Data Silos

Financial data intermediaries can make Open Banking possible. And Open Banking provides countless benefits to financial institutions. Open Banking provides financial services companies greater insights into their customers' needs and enables more efficient data sharing across the entire organization. It also helps create a unified approach to digital identity management and reduces data resale and data exhaust issues. This can lead to: 

• More Accurate Customer Profiles: Financial providers can gain access to real-time financial data from their consumers. They can easily see where consumers are sharing their data and why it is being used. This helps identify product and partnership opportunities.
• Enhanced Customer Experiences: By putting consumers in the driver’s seat, financial providers can build trust and improve relationships, leading to greater customer satisfaction and loyalty.
• Personalized Services: By analyzing their financial data, businesses can identify specific customer needs or preferences and tailor their offerings accordingly. For example, a bank may offer investment opportunities to customers who have a higher disposable income, or provide budgeting tools to those who struggle to manage their finances. By offering more personalized services, businesses can create a stronger connection with their customers, leading to increased loyalty and retention.

Increased Reliability

Financial data intermediaries are constantly upgrading their servers with direct connections via a bank API, ensuring that financial providers can enjoy uninterrupted service.

Reduced Fraud and Risk

Open Finance enhances security measures, such as instant account verification and modern authentication standards, to protect consumer data and reduce the risk of fraud. 

Benefits for Consumers

Enhanced Access to Financial Services

Open Finance allows consumers to connect their financial data with various apps and services, making it easier for underserved populations to access banking, credit, and investment opportunities.

Easier Money Management

Intermediaries empower consumers to link together data from a range of sources without having to sign into individual accounts every time they want to see their account and transaction information — with data being updated in real time.

Better Control Over Their Data

Consumers have more choice and control over the data they share and how they engage with their finances using open banking connections. 

What to Look for in a Financial Data Intermediary

When financial providers are ready to reap the benefits of improved data access for themselves and their consumers, they will need to evaluate and weigh their options in choosing the right financial data intermediary. 

There are various financial data intermediaries that financial institutions can work with, but these are the most important things to consider:

Interoperability

Within Open Banking, interoperability ensures that data flows easily and securely between data providers and third parties. This means consumers can share their financial information with authorized parties, such as budgeting apps or payment processors, without compromising privacy or security, and without being locked out depending on which financial provider they choose to use.

Financial institutions should ensure they work with an intermediary that promotes and prioritizes interoperability. 

Consumer-Centric Principles

As mentioned above, some data aggregators may collect, store, use, or sell consumer financial data in other ways. Ensure that data intermediaries are not aiming to profit or use consumer-permissioned data beyond the scope of how the consumer has given permission.

Robust Data Security and Privacy

Make sure the intermediary has robust data security and privacy measures, including encryption, authentication protocols, and compliance with global data privacy regulations, like GDPR and CCPA. 

Protecting sensitive customer data is paramount in the financial services industry to safeguard customer information and maintain trust in the digital financial ecosystem.

MX as a Financial Data Intermediary

MX is a huge proponent of Open Banking and the benefits it delivers for consumers and the financial services industry. We truly believe that Open Banking creates a competitive advantage for financial institutions, an engine of innovation and growth for fintechs, and helps enable financial strength for consumers.

Open Banking (and Open Finance) helps put the right financial solutions in the hands of the right consumers at the right time. This happens while also fueling higher deposits and income for financial providers so they can pour more energy into innovation that moves the industry forward. 

As an open banking intermediary, MX prioritizes consumer outcomes at every turn. How do we do this? 

• By focusing on open banking and secure APIs, MX is helping to create a more competitive and innovative financial services landscape that benefits consumers and businesses alike.
• When individuals and communities have access to — and can effectively use — a range of financial services, it fosters economic empowerment, reduces inequality, and promotes social mobility. 
• Financial fraud is a huge problem. MX helps bolster fraud prevention and mitigate risk with tokenized connections that eliminate credential sharing, real-time verifications and balance checks, and cleansed and enhanced transaction data that can help you spot anomalies faster. 
• Consumers should have the right to control their financial data and choose how it is shared and used. And, we believe consumers should provide clear and explicit permission for use of their data, including how it will be used to perform the requested service.