New Partnership With Yodlee

We announced this morning that we have entered into an exclusive relationship with Yodlee. You can find the press release here.

As usual, press releases only tell you so much, so I figured I'd add some color commentary here for anyone interested. There were really strong motivations on both sides for this deal.

From Andera's perspective, we have been hearing loud and clear from the market that we need stronger verification and risk management of the initial funding transaction. Up until now, our approach has been to dynamically set initial funding limits and hold periods based on the perceived risk of the applicant. For example, an applicant with a poor credit score and an iffy identity verification match, living overseas, and applying for a checking account, would likely be given a low funding maximum (and/or a long hold period on the funds). Similarly, an applicant with perfect credentials, living within the bank's local market, and applying for a non-transactional account (for example, a 12 month CD) might be given a much higher funding limit.

This approach has worked well for us and our clients in the years that we've been perfecting it, with our customers generally experiencing a low (and manageable) incidence of loss. However, regardless of the effectiveness of this risk-based approach, financial institutions have been increasingly asking for an additional check to verify that the applicant actually owns the source account from which the initial deposit will be transferred.

If this sounds obvious, consider that up until recently, the only really viable way to verify account ownership has been to make two very small "trial deposits" (<$1.00) into the applicant's external account, and require that they come back to verify the exact amounts deposited, thereby confirming they have access to that account. This is, at best, a 1-2 day process, detracting from the real-time nature of an account opening application, and resulting in a significant abandonment rate. In other words, applicants tend not to come back to verify their trial deposit amounts. This isn't just me hypothesizing - we have heard this consistently from banks using our competitors' products which rely on this method.

So, we have stuck to our risk-based approach over the years, allowing us to maintain a fully real-time transaction, and the corresponding low abandonment rates that have become our hallmark.

However, fast forward to today and things are a lot different. Yodlee (if you're not familiar with them, check them out here) has developed an unbelievably effective real-time account verification technology. They were the original pioneer of account aggregation technology, and have now leveraged this experience to provide a same-session alternative to trial deposits. We were skeptical at first, but based on our extensive testing, we found the results (as my quote says in the press release), simply astonishing. More than 75% of U.S. checking and savings accounts can be instantly verified through this method. That's awesome.

This met our criteria for (a) instantaneousness and (b) effectiveness, and gave us the green light to move forward with a partnership. I should mention that we will also be integrating Yodlee's trial deposit functionality as an option for applicants who would prefer it over the instant approach. We would not have integrated trial deposits on their own (for reasons stated above), but as a complement to instant account verification, it makes a lot of sense.

What this means for our customers is that our traditional risk-based approach can now be seamlessly combined with a powerful ownership-based approach, in a single aggregate rules model. This unique combination paints a more accurate picture of funding risk than either approach on its own, and ultimately gives our customers a much richer toolset on which to base their business rules and decisions.

Next, we're working on integrating with Yodlee's FundsTransfer system, allowing ongoing A2A ("account-to-account") capabilities after the account is opened. This is another area we've heard customers want integrated with their account opening platform, and we get it. More on this later.

Customers have told us we already have the strongest capabilities in the account opening market for core integration, automated decisioning, customizability, and other critical features. Now with this Yodlee partnership, we believe we now also have the strongest capabilities for funding in the market as well. Funding verification was once perceived by some to be a gap in our product offering, so it feels great now to have turned that gap into what I expect will be considered another one of our great strengths going forward.

Three beta customers will be going live with instant account verification and trial deposits in the Fall, and once that beta is complete, it will be made available as an option for all current and potential customers later this year.

Separately, the reciporical side of this partnership is that Yodlee will be reselling the combined solution as "Yodlee AccountOpening" to their traditionally larger financial institution client base. I can't speak for them, but I think they believe that this partnership fills a gap in their product line as well. That makes it a classic win-win.

As usual, I'd welcome feedback on this relationship, and will keep you posted as the beta progresses.