The fintech industry has sought help from the Trump administration in an attempt to stop banks led by JPMorgan Chase from charging fees for fintech companies to access customer bank data.
Written by: Yueqi Yang
Translated by: Block unicorn
The fintech industry has sought help from the Trump administration in an attempt to stop banks led by JPMorgan Chase from charging fees for fintech companies to access customer bank data.
According to a pricing schedule proposed by JPMorgan Chase, the fintech and crypto industries may need to pay hundreds of millions of dollars to obtain customer bank account information, which is currently available for free. This data allows companies like Venmo and Coinbase to easily accept customer fund transfers, verify bank balances, and understand customers' financial histories to provide loans.
However, JPMorgan Chase CEO Jamie Dimon stated during this week's earnings call that establishing a secure data-sharing system has cost banks "a lot of money." A spokesperson for JPMorgan Chase 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 is doing the work to provide the data, charging some fees is reasonable. But if the fees are too high, it could stifle the entire industry or cause serious harm to it."
Two major fintech trade groups—the North American Financial Data and Technology Association and the Financial Technology Association—have stated that they have met with the Treasury Department in recent weeks, urging regulators to uphold a regulation known as open banking rules. This regulation was issued during the Joe Biden administration and requires banks to allow consumers to share data with other financial institutions for free.
As part of the lobbying effort, some in the industry pointed out that President Trump issued an executive order requiring federal agencies to phase out paper checks to modernize payments. They believe that allowing banks to charge for customer data would hinder this financial innovation.
The open banking rules stem from legislation enacted after the financial crisis. It grants 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 rule was finalized last year, and banks filed lawsuits attempting to block its implementation. In May of this year, the Trump administration effectively sided with the banks, stating it would rescind the rule.
This move only gained widespread attention recently after JPMorgan Chase sent pricing information to some companies, informing them of the charges 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 sector has been slower due to Congress previously deliberating on crypto legislation. However, an increasing number of crypto industry executives are beginning to speak out. Arjun Sethi, co-CEO of crypto exchange Kraken, tweeted that JPMorgan Chase's fees are "a burden." He added that by charging for data access, "banks can decide who has the right to build and what services those builders can offer."
More banks may follow suit. Industry executives are watching Bank of America and PNC, as they have large customer bases and histories. In 2019, PNC blocked Venmo from accessing customer account information, instead directing users to the bank-owned payment system Zelle. During last Wednesday's earnings call, PNC CEO Bill Demchak indicated 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 amount to 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 costs 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 the high fees banks charge for moving funds into crypto apps could become a new bottleneck for the industry.
Some in the industry downplayed the potential impact of the fees on their businesses. PayPal stated that its data aggregators for verifying customer accounts (such as Plaid, Yodlee, and Mastercard's Finicity) will have to absorb the costs, as PayPal's contracts with these companies prohibit passing on fees.
Startups may face a greater impact than larger companies, as larger firms have stronger bargaining power. For example, PayPal holds deposits at 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 uses users' financial data (such as checking and savings transactions, credit cards, brokerage accounts, and student loans) to provide personalized recommendations.
Bloch of Hiro stated, "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 this 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.
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