“Contrary to what you may read, we have no problem with data sharing but only if it is done properly,” he wrote. “It must be authorized by the customer — the customer should know exactly what data is shared and when and how it is used; third parties should pay for accessing the banking system and payment rails.”
His words have become reality — with implications for financial services, and particularly for data aggregators that have relied on that data to act as a bridge between FinTechs and financial institutions.
Digital Data Tariff
J.P. Morgan told FinTechs that it will charge for access to its customers’ bank information. The fees are likely a work in progress, open to at least some negotiation, but early indications are that they would bring hundreds of millions of dollars to J.P. Morgan.
In terms of the economics, the fees could equate to multiples of the values of the transactions themselves, which means a heavy hit to FinTechs’ profit margins, if they have profits at all.
It’s not too far-fetched to draw a parallel with tariffs. Just as businesses that import goods face a tax on that activity, so too would the importing of data from the banks to create new products and services come with an arguable “tax” on that activity.
Paving the Path
Rule 1033 is not officially dead, but it’s seemingly on life support. A judge is gearing up to decide on vacating the rule via summary judgment, which opens the door for fees on third parties to be levied.
As put forth by the Consumer Financial Protection Bureau, the rule had stated that FinTechs would be granted free data access; banks pushed back in court that they should be able to charge for that data.
The President Donald Trump administration ushered in an about-face, filing in court that the CFPB overstepped its bounds.
“The statute itself simply dictates that data providers ‘make available to a consumer’ their consumer’s financial data, yet the rule regulates beyond the scope of the statute by mandating that data providers make consumer data available to other commercial actors in a costly and complicated data-sharing system,” the CFPB said.
For aggregators such as Plaid, which act as middlemen between banks and FinTechs, and for the FinTechs that rely on transaction volumes — while connecting to the aggregators rather than by building their own direct bank-by-bank connections — to boost top lines, the impact could be devastating.
That’s because J.P. Morgan, the largest bank by asset class, has a reported 80 million customers across its retail and commercial lines.
Early trading activity Monday (July 14) underscored some of the uncertainty that lies ahead, as shares of Affirm were down nearly 1%, Sezzle was off 1.3% and PayPal was up 3.5%.
For Plaid, there is some insulation from the vagaries of the market, as it is not publicly traded. Plaid CEO Zach Perret told PYMNTS in June that financial institutions must allow data movement in and out of their systems to enable consumers to use a range of applications.
“One of the bigger concerns I have would be the inconsistency among banks regarding data,” he said, and lack of standardization of data information and flows has resulted in instances where, for example, banks blocked access to cryptocurrency applications, leading consumers to switch banks.
The Pass-Through Effect?
In accessing bank data for all manner of activities — such as verifying bank accounts or underwriting credit — fees would be passed along to FinTechs, and possibly to FinTechs’ end clients.
The PYMNTS Intelligence report “Digital Transformation and Instant Payments Fuel Business Disbursement Efficiency” found that in some cases, consumers are willing to pay for speed and convenience when it comes to money movement. Nearly half of disbursement receivers said they are open to paying higher fees for instant transactions when funds are urgently needed. Specifically, 27% are willing to pay a slightly higher fee, and 20% are willing to pay a much higher fee.
For FinTech startups, particularly for denizens of the PYMNTS FinTech IPO Index, which is populated with firms that are not yet cash flow positive, margin pressures might force a reckoning of business models.
Perret told PYMNTS in the June interview that regulatory uncertainty “will make for a period of chaos.”
PYMNTS Intelligence found that only about 1 in 10 consumers have used open banking payments (which means that they are sharing their bank account data).
