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The age of widget banking cometh

And I, for one, welcome our new Yodlee overlords. Felix Salmon explains:

Yodlee is the engine behind the online banking operations of most banks in America — and, for that matter, of mint.com. (I wrote about Yodlee and Mint back in September.) It’s built up an enormous dataset over the years — $3 trillion of transactions from 23 million users have been cleaned up and put into a huge database by 500 employees — and it’s now going to open up that database to software developers around the world. People like Josh [Reich, of i2π] will be able to write applications, or “widgets,” which will allow people do do things with their personal finances which until now simply haven’t been possible.

For instance, a company like BillShrink might build a widget to look at all of your bank accounts and give impartial advice on where you might be losing money, or missing out on the opportunity to make money. Or there could be some kind of payments widget, using the cheap ACH network rather than the expensive wire-transfer network, allowing people to pay each other easily without going via PayPal. Or a bank could set up a simple dynamic comparison tool, a bit like Progressive Insurance, showing how their rates and fees compare to anybody else’s. Or someone could build a new kind of scoring system based on assets as well as just credit history — as Arora notes, you can have $10 million of cash in the bank, but any number of very normal [problems] can still result in your having a bad credit score. Josh talked about building an app which lets you take a photo of a bill with your iPhone, and the widget automatically pays it on the due date. And then there are all manner of savings and investment and tax possibilities on top. There might not be 100,000 apps like there are on the iPhone, but a few hundred is a distinct possibility.

It's not hard to see why banks have been a bit resistant to all this: They make money from the inefficiencies and difficulties present in the current system. It's good for them if you forget to check your balance and have to pay an overdraft fee. An app that sent you a text every time your account fell beneath $25, or three days before your credit bill was due, would virtually erase some of the easiest income banks have.

By Ezra Klein  |  December 10, 2009; 5:21 PM ET
 
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Comments

I think some of the hesitation among the banking industry has to do with criminals being able to build a better mouse trap with this data. Technology and information is all about providing tools... it's us hairless monkeys that take a perfectly good shovel and turn it into a weapon.

There's been tremendous resistance from banks to spend the funding necessary to do things like implement PIN-enabled credit cards, PCI security standards, etc. This data will increase the sophistication of criminals and programmers alike, resulting in the banks being even farther behind the curve on security upgrades.

Posted by: Jaycal | December 10, 2009 6:35 PM | Report abuse

Your last point on how inefficiencies are good for banks points in the same direction as Krugman's complaint that there haven't been any real innovations in finance and banking in the past 50 years other than the ATM. Bankers would like us to believe that they deserve all that money, but they don't.

Posted by: bcbulger | December 11, 2009 9:49 AM | Report abuse

Wouldn't PIN-enabled credit cards "increase the sophistication of criminals" because the more rigorous security measures would be more difficult to circumvent? An analogous argument might be that you don't have to worry about burglars armed with lockpicks if you don't lock your doors...

Posted by: tps12 | December 11, 2009 11:58 AM | Report abuse

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