JPMorgan Chase shook the industry last year when it announced plans to charge fintech companies for access to customer data. This marked a major shift in a model where third-party providers have increasingly bridged the gap between legacy banks and digital services.
Financial firms have supplied the application programming interfaces (APIs) that are now central to services like peer-to-peer payments or account aggregation. Many of these companies thrived because they historically had free access to customer data.
After Chase’s announcement, fintechs argued that introducing fees could cost their companies millions and even disrupt the modern U.S. financial services ecosystem. However, as Matthew Gaughan, Payments Analyst at Javelin Strategy & Research, notes in the How Banks and Fintechs Are Jostling for Position in the New Data Access Economy report, this shift doesn’t necessarily spell doom for payments aggregators or fintechs.
Financial institutions now find themselves in a rapidly evolving landscape where the balance of power—rooted in control over customer financial data—is yet to be determined.
Commoditizing Connectivity
This data is the lifeblood of the open banking model, where third party APIs give customers full visibility into their finances and the ability to switch institutions when a better product emerges.
Regions like the UK and European Union have emphasized open banking as a critical component of future economic growth, developing regulatory frameworks to support it. For example, the EU issued its Revised Payments Service Directive (PSD2), with PSD3 on the horizon. PSD2 aimed to enhance competitiveness among banks and eliminate unsound practices.
“The way that companies like Plaid and Trustly came to market at first was largely they got this data through screen scraping, which is less secure,” Gaughan said. “Initially, they filled the need, alongside the emergence of personal financial management tools. This was probably one of the first actual use cases for this type of data aggregation, getting different financial information in one place.”
While screen scraping was once common, it raised privacy and fraud concerns. PSD2 therefore established APIs as the preferred method for connecting banks with third parties.
In the U.S., fintechs have also moved away from screen scraping—but not through regulatory mandate. Instead, the market has driven the shift. The U.S. approach reflects both philosophy and practicality: with thousands of financial institutions, broad regulation is more complex than in the consolidated UK and EU markets.
Despite these differences, the U.S. is steadily moving toward an open banking model, meaning fintechs—particularly aggregators—play a critical role domestically as they do internationally.
“These guys started out screen scraping, then they moved to open banking APIs and services as an API layer to help connect banks to all the many different fintechs—whether it’s personal financial management or workplace management—to connect them so they can access the data,” Gaughan said.
“That model has worked for a long time but as things went on, it’s becoming more commoditized. At least that connectivity aspect of it which is how these aggregators essentially make their money has become more commoditized because they’re essentially providing a similar infrastructure,” he said.
A Concerted Effort to Assert Control
As data access and management tools have improved, the leading aggregators have adjusted their business models accordingly.
“They’ve augmented their offerings by providing more value-added services,” Gaughan said. “For somebody like Plaid, that’s been in the way of making loan decisioning better for certain institutions, just giving more useful data that helps them make those decisions. For MX , it’s about cleaning that data and enhancing it and making it more useful for customer relationship management tools within a bank.”
This shift is occurring amid a financial services landscape in which banks are seeking tighter control over customer data.
“Akoya is another one of these financial data aggregators. They like to call themselves a financial data aggregator network, but they do a lot of the same things as these other guys,” Gaughan said. “The difference is they are an independent company, but they’re partially owned by 11 different banks and financial institutions, including some of the biggest banks.”
“They came to market in 2020, but with recent developments with JPMorgan coming out and saying that they were going to charge to access their financial data, PNC and Wells Fargo directed their clients to use Akoya—the bank owned one—more,” he said. “You’re seeing more of a concerted effort by banks to assert control over this space, especially heading into a scenario where there are more defined regulatory guidelines.”
An Inherent Tension
The regulatory rollercoaster in the U.S. has also complicated the space. The Consumer Financial Protection Bureau finalized Section 1033 rules for open banking over a year ago, and while the comment period has passed, questions remain about the final framework.
In the absence of clear guidelines, banks have acted to address what they perceive as the imbalance with fintechs. This issue runs deeper than free data access—JPMorgan Chase also highlighted that many API calls from aggregators were not customer-initiated but instead driven by aggregators seeking marketing insights or product improvements.
“There remains an inherent tension between banks and aggregators, because if you think about aggregators, how they make money is they charge for access to that consumer financial data. Whether it’s through a one-time fee, usage-based fees, or subscription fees. They’re making money off the data which is essentially obtained from the financial institution,” Gaughan said.
Despite these tensions, aggregators are still indispensable. Yet, as bank tighten control over data and regulatory clarity lags, new players are likely to emerge, looking to operate within models where banks are compensated for financial data.
All of these factors point to a sector poised for significant change in the coming years.
“It’s hard to say exactly, but I will say that I don’t think there’s a scenario where financial data aggregators go away,” Gaughan said. “There’s a bit of a codependence between banks and aggregators. People probably ask the question: ‘Is this something banks could just do themselves?’ They have their own product APIs and things along those lines.”
“In some cases, maybe they could,” he said. “But the benefit of a Plaid or an MX is they allow the bank to connect to many of these third-party service providers, whereas a bank might have to either develop their own API abstraction layer that does that or make a bunch of different one-to-one connections to all these different providers, which is both time and resource intensive. It’s just not realistic.”
The post The Growing Data Battle Between Banks and Fintechs appeared first on PaymentsJournal.
