Among JPMorgan Chase & Co.’s many concerns over increasing data requests from fintech go-betweens. They view these requests as an undue imposition on their operations. Yet in June alone, the bank experienced an unbelievable 1.89 billion data requests per month and week from these middlemen. Incredibly, just 13% of these requests came from legitimate customer transactions. The bank’s CEO Jamie Dimon has been calling for it to happen. He’s an outspoken proponent of fairer regulations that he feels are making the financial industry suffer.
As stunning as that news is, JPMorgan’s memo disclosed an even more surprising figure. Well over half of those API requests—1.08 billion—came from only one fintech partner. JPMorgan, like everyone else, has been inundated with this sudden increase in activity and is the canary that’s cawing the loudest. They say these superfluous asks are “massively taxing our systems.” The bank’s conclusions uncover a shocking fact. Automated Clearing House (ACH) electronic payments processed by data intermediaries are 69% more likely to result in a claim of fraud.
In June alone, JPMorgan Chase incurred around $50 million in fraud claims related to ACH transactions that started through aggregators. The bank expects that this number may even be three times larger within the next five years if trends continue. In retaliation, JPMorgan announced it would begin charging fintech companies for their access to customer data. This change would have the potential to upend the entire regulatory competitive landscape of the fintech ecosystem.
Fintech aggregators such as Plaid and MX are booming. They help bridge the gap between legacy banks and cutting-edge fintechs. This increasing reliance on such third party gatekeepers has begun to concern insiders at the global banking giant JPMorgan. Dimon has called on his fellow bankers to tackle head on the challenges these regulations and the risks they bring with them.
According to Dimon, if the courts repeal the Biden administration’s ‘open banking’ rule, the important question becomes what does that mean. It’s not a question of if middlemen will need to pay for data, but how much they will need to pay.
JPMorgan’s recent actions illustrate a much larger trend across the banking landscape that the relationship of the future with fintech partners is increasingly unsustainable. Consumers are looking to access more intelligent and agile financial solutions that suit their lifestyles. Consequently, the speed and scope of data retrieval is about to expand exponentially.
Addressing JPMorgan’s concerns, Plaid reiterated the need for a collaborative approach to ensure we have a competitive, successful data-sharing ecosystem.
“To be clear, we believe it is essential that the data sharing ecosystem works for everyone, including consumers, fintech developers, and financial institutions – many of whom leverage open banking in their own products.” – JPMorgan
In response to questions from American Banker, Plaid vigorously defended its practices. They claimed that having no user present when calling a bank’s API was the norm throughout the industry.
“Calling a bank’s API when a user is not present once they have authorized a connection is a standard industry practice supported by all major banks in order for consumers to get critical alerts for overdraft fees or suspicious activity.” – Plaid
The JPMorgan memo that caused the ripple tracked 13 fintech companies, showing that this concern is not just with one company. The reality is data requests are increasing exponentially, highlighting an organizational challenge. The challenge is one that both traditional banks and fintech companies need to collaborate to address.
Thirdly, industry experts are optimistic that the two parties understand the importance of reducing non-emergent call volumes and improving operational efficiency.
“I think both sides fully acknowledge there are things they could do to right-size call volume.” – Person with knowledge of the negotiations
Debates over the future of our growing fintech ecosystem have begun to warm. It’s obviously too soon to tell how these changes will affect consumer access to financial services, and the overall relationship between banks and fintechs. The possible move to charging for access to data would change how players interact on this fast-moving landscape.