As concerns grow over the relationships between fintechs and banks, Visa will reportedly shut down its open banking services in the United States.
Open banking relies on third-party relationships, where financial technology companies connect banks to each other and to a range of services. These offerings have become essential to the digital banking experience consumers now expect, including everything from credit score monitoring to peer-to-peer (P2P) payments.
As the operator of one of the largest financial networks in the world, Visa is a natural fit to drive open banking initiatives. Indeed, the company sought to acquire one of the largest U.S. fintechs, Plaid, several years ago. However, the U.S. Department of Justice blocked the deal due to antitrust concerns.
Two years later, Visa acquired Swedish open banking platform Tink, in a move indicative of its new open banking strategy. Visa said that once it shutters its U.S. open banking service, it will focus on high-potential markets such as Europe and Latin America.
A Regulatory-First Approach
These regions have become open banking leaders because they have taken a regulatory-first approach to the model. One key difference between the EU and the U.S. is that European regulators have mandated that their banks share data with third parties for free, while the U.S. has left banks and fintechs to negotiate terms privately.
Until recently, U.S. fintechs were able to receive banking customer data for free, like their European counterparts. However, this could change following the news that JPMorgan Chase has considered charging fintechs fees to access customer data. Shortly after, PNC Financial indicated it may follow suit.
Focusing Efforts Elsewhere
These announcements sent shockwaves through the financial service industry because they could fundamentally reshape how banks and fintechs operate. Many smaller fintechs have warned that paying fees to access customer data could make it difficult for them to sustain their businesses.
Chase and PNC, however, have argued that charging fintechs fees has become a necessity to cover the costs of keeping customer data safe. They point to concerns that fintechs could exploit data for their own purposes, which in turn increases risks for banks—who remain ultimately accountable for safeguarding consumers.
There is still uncertainty around how these fees will be implemented, just as questions linger over open banking regulations in the U.S. After the Consumer Financial Protection Bureau finalized its Section 1033 rules governing open banking last year, the regulations hit an administrative roadblock. A revised version is reportedly in the works.
Until these issues are ironed out, Visa—and likely many of its competitors—will continue to focus its open banking efforts elsewhere.
