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Investors not yet ready for financial aggregation

Would you store all your financial information in one filing system on the Internet, including bank accounts and credit card details? Many companies, called aggregators, are betting consumers and businesses will be willing to go along with such a system -- but there are good reasons for you to stay away from doing so right now because of poor security and privacy issues.

Aggregation would be a useful tool for businesses and consumers based in overseas locations, such as Bermuda, with online bank and brokerage accounts in the US. Consumers with a number of accounts don't have to go to a number of different sites and use different log in names and passwords to gather the information. Subscriber to an aggregator would sign in once and get access to all their online accounts and financial information.

One such company attempting to get in on the market is Citigroup, which is offering MyCiti (www.myciti.com), an online account manager for Citibank and non-CitiBank accounts. Citigroup and other major banks such as First Union Corp. are using third party aggregator Yodlee Inc. to handle the process of ensuring privacy and security for customers. First Union plans to introduce the service to its 1.7 million online banking customers in 2001.

The advantages are many. A recent study by Forrester Research Inc. found that 60 percent of consumers would like a complete view of their financial lives.

"The goal: A hassle-free, easily accessible, up-to-date view of everything owned and owed,'' Forrester reports. ''Until recently, only the few who could afford professional guidance received a complete view of their financial condition. But even this was usually no more than a printed snapshot of their status weeks or months earlier. While software like Quicken was meant to improve this inefficient, static picture, few could figure out how to automatically import account statements, leaving most to manually input data.

And users could only access these files from their PC.'' Since the average US household maintains about four accounts across more than three financial institutions, including brokerage and insurance companies, online aggregation would make it easier to juggle their finances, including, investment portfolios, loans and credit card balances, when they wanted, and not just once a month. Meanwhile aggregators hope to become that data nexus -- so as to strengthen ties with consumers, gather richer information, and then ultimately cross-sell a range of products and services.

However Forrester found that the privacy fears and security concerns would prevent aggregators from getting the mass of business they are hoping for.

Only seven percent of US households are online, interested in aggregation, and unconcerned about giving an aggregator access to their financial information, according to Forrester.

"While some online consumers like the idea of financial aggregation, most won't hand over the digital keys to their financial kingdoms to get it,'' Forrester stated. ''In fact, so few consumers have the right combination of Web access, interest in aggregation, and experience managing their finances electronically that less than three percent of US households will use online aggregation by 2003.'' Still aggregators are attempting to address those privacy and security concerns. CitiBank states that ''safeguarding this information is Citigroup's utmost priority, a non-negotiable promise from us to you.'' CitiBank states that all data will be transmitted and stored in an encrypted format. Physical security will include firewalls, intrusion detection, private addressing, "sanitised systems'', and secure socket technology.

But those promises have been made before by other companies, who have subsequently fallen afoul of hackers. The most egregious example is the break in of Creditcards.com in early December, in which a hacker exposed 55,000 credit card numbers on the Internet for more than a day. The credit card information was posted after a failed extortion attempt in which the company refused to hand over money. In retribution the hacker broke though a security hole and stole the information as promised.

Creditcards.com is a Los Angeles-based business-to-business site that works with Web merchants so they can accept credit card payments. The case is just another of high profile breeches that have occurred this year. Human error at Western Union caused a glitch in September that allowed a hacker to steal 15,700 credit card numbers from the company's web site. Hackers also broke into CD Universe's database in January and posted links to thousands of customer names, addresses and credit card numbers after not being able to extort money from the online music store.

What could the information be used for? One example is the mysterious charges to the credit card accounts of dozens of online shoppers. The FBI says the charges may be linked to the online theft at Creditcards.com. The unauthorised charges range from $10 to $18 from a company called Global Telecom, based in Moscow. The problem is that many more people than have so far complained may not have noticed the charges because of the small amounts involved, so if you are an online shopper carefully check all your account statements each month.

While I have four online accounts with banks and a brokerage I'm certainly not going to consolidate them into one financial statement through an aggregator because of these continuing problems. I can easily imagine the massive problems that would occur if a hacker does manage to break into an aggregator's Internet site. It would be a gold mine for the fraudster.

Eventually someone will manage the feat, as the aggregators, through their promises, have in effect thrown down the gauntlet to the hackers.

Still aggregation is the wave of the future for those with multiple bank and brokerage accounts. Forrester believes aggregation will evolve to become a platform not just for assembling financial information, but also for receiving analysis and advice based on that information. But until the security concerns are fixed I'm not going to be one of the brave few who jump on board.

Tech Tattle deals with topics relating to technology. Contact Ahmed at editor yoffshoreon.com or (33) 467901474.