Written by: Yueqi Yang
Compiled by: Block unicorn
The fintech industry has sought help from the Trump administration in an attempt to thwart the threat posed by banks led by JPMorgan Chase charging fintech companies for access to customer banking data.
According to JPMorgan Chase's proposed pricing schedule, the fintech and crypto industries may need to pay hundreds of millions of dollars to access customer bank account information, which is currently obtained for free. This data enables companies like Venmo and Coinbase to easily accept customer fund transfers, verify bank balances, and understand customers' financial histories to offer loans.
However, JPMorgan Chase CEO Jamie Dimon stated during the earnings call this week that establishing a system for securely sharing data has cost the bank 'a lot of money.' A JPMorgan Chase spokesperson indicated that the bank is having 'productive conversations' with the industry on this issue.
Ethan Bloch, founder of Hiro and developer of an AI personal finance app, stated: 'If JPMorgan Chase does the work of providing data, charging some fees is reasonable. But if the fees are too high, it could stifle the entire industry or cause serious harm.'
Two major fintech trade groups—the North American Financial Data and Technology Association and the Financial Technology Association—have reported that they have met with the Treasury Department in recent weeks, urging regulators to maintain a regulation known as open banking rules. This regulation, issued during the Joe Biden administration, requires banks to allow consumers to share data with other financial institutions for free.
As part of the lobbying efforts, some within the industry noted that President Trump issued an executive order requiring federal agencies to phase out paper checks to modernize payments. They argue that allowing banks to charge for customer data will hinder such financial innovation.
Open banking rules originated from laws established after the financial crisis. They grant consumers, rather than banks, ownership of their banking data. This means that when consumers wish to share data with external companies like PayPal, banks cannot charge fees.
The rules were finalized last year, and banks filed lawsuits attempting to block their implementation. In May of this year, the Trump administration effectively sided with the banks, stating it would rescind the rules.
This initiative only gained widespread attention recently after JPMorgan Chase sent pricing information to some companies, informing them of the fees for accessing bank account information, as reported by Bloomberg last week. Other banks are expected to follow suit.
The Treasury Department and the Consumer Financial Protection Bureau, which is responsible for regulation, did not respond to requests for comment.
The crypto industry faces the same fee issues as fintech companies, but the response from the crypto industry has been slower due to Congress previously deliberating on crypto legislation. However, more and more crypto industry executives are starting to speak out. Arjun Sethi, co-CEO of the crypto exchange Kraken, posted on Twitter that JPMorgan's fees are 'a burden.' He added that by charging for data access, 'banks can decide who has the right to build and what kind of services those builders can provide.'
More banks may follow suit. Industry executives are watching Bank of America and PNC closely because they have large customer bases and histories. In 2019, PNC blocked Venmo from accessing customer account information, steering users to its bank-owned payment system Zelle instead. In last Wednesday's earnings call, PNC CEO Bill Demchak stated that the bank is also considering charging fees and praised JPMorgan Chase's initiative. Bank of America did not respond to requests for comment.
The largest data aggregators, including Plaid, are currently negotiating with JPMorgan Chase over the upcoming fees, which could reach hundreds of millions of dollars annually and may take effect as early as late summer this year.
Shares of companies like PayPal and Block previously fell due to JPMorgan Chase's actions but have since recovered. There are concerns that data aggregators like Plaid may pass on the increased fees to these platforms.
According to Bloomberg, JPMorgan Chase's pricing plan will charge the highest fees to fintech companies focused on payments. This could impact some crypto companies that need to transfer funds between customer bank accounts. Crypto advocates, including A16z co-founder Ben Horowitz, have stated that excessive fees charged by banks for transferring funds into crypto applications may become a new bottleneck for the industry.
Some within the industry have downplayed the potential impact of fees on their businesses. PayPal stated that its data aggregators for verifying customer accounts (such as Plaid, Yodlee, and Mastercard's Finicity) would have to absorb the costs, as PayPal's contracts with these companies prohibit passing on the fees.
Startups may face a greater impact than large companies because larger companies have stronger bargaining power. For example, PayPal holds deposits with JPMorgan Chase and is a client of its investment banking services.
Budgeting and investment apps may struggle to cope with these fees. For instance, Hiro provides personalized recommendations using users' financial data (such as checking and savings transactions, credit cards, brokerage accounts, and student loans).
Hiro's Bloch stated that JPMorgan Chase is 'the most important bank in America today, and they will set an example for everyone else. The banking industry will face less competition, and innovation will slow down. I find that very disappointing.'
The court battle between banks and the government continues, despite the Trump administration's decision to withdraw the case. The Financial Technology Association has filed a motion to defend the open banking rules, and the Consumer Financial Protection Bureau must respond by July 29.
