Fintechs like PayPal and Block may soon have to pay for access to banking customers’ data if JPMorgan Chase proceeds with plans to impose access fees.
Financial technology firms have been central in the digital banking zeitgeist, with many banks and credit unions partnering with third parties to offer services ranging from credit score monitoring to crypto transactions. While many fintechs have thrived in this ecosystem, much of their success has hinged on one key factor: free access to customer data.
According to Bloomberg, Chase recently distributed pricing sheets to data aggregators—companies like Plaid that connect banks with fintechs—detailing how it plans to charge for data access. The fees would vary based on how the fintechs use of the customer data, with higher charged for those involved in payments processing.
A Significant Step Back
Charging fintechs fees that could potentially amount to hundreds of millions of dollars may have dramatic impacts on the U.S. financial services industry—and could be seen as a significant setback for the open banking model in the U.S.
One of the foundational concepts of open banking is that third-party providers have unfettered access to consumer data. The objective is to give customers transparency into how their data is used and to allow them to switch banks as easily as they switch subscriptions.
Because this paradigm gives customers more freedom, it should also spur greater innovation among financial institutions. Critics of JPMorgan’s proposed fee structure have said it could hinder fintechs’ ability to compete and stifle innovation.
Scrutinizing Partnerships
On the flip slide, JPMorgan Chase CEO Jamie Dimon has previously voiced concerns about how fintechs use customer data. One of the main criticisms of the open banking model is that relinquishing data to third parties significantly increases risks for the highly regulated financial institutions who are ultimately accountable for protecting their customers.
These concerns came to a head after the failure of Synapse, which resulted in approximately $85 million in frozen customer funds. Following this collapse, many regulators voiced concerns about the role of fintechs in the financial industry, prompting calls for tigher regulations around these partnerships.
The U.S. Consumer Financial Protection Bureau (CFPB) recently finalized its rules governing open banking under Section 1033 of the Dodd-Frank act, giving consumers more freedom and requiring banks to share data with another lender or financial services provider at no cost.
However, the future of Section 1033 remains uncertain. In the absence of regulation, many of the largest banks are proactively scrutinizing their fintech partnerships. For its part, Chase has said it has no issue with sharing data with fintechs—as long as the process is performed properly— and that its fees are still up for negotiation.
