JPMorgan Chase, one of the largest banks in the United States, is facing a challenge from fintech middlemen who are overwhelming the bank’s systems with unnecessary data requests. These middlemen, such as Plaid and MX, have been instrumental in connecting new financial apps with traditional checking accounts. However, JPMorgan has raised concerns about the frequency of data access requests from these middlemen.
According to an internal memo seen by CNBC, out of 1.89 billion data requests received by JPMorgan in June, only 13% were initiated by customers for transactions. The majority of requests were for purposes such as product improvement, fraud prevention, and data harvesting for resale. As a result, JPMorgan is preparing to charge these middlemen for access to its systems, citing the increasing costs of maintaining infrastructure.
The move by JPMorgan to charge for customer data access could potentially disrupt the fintech ecosystem, which has thrived on free API access for years. The situation escalated in May when the Consumer Financial Protection Bureau supported a banking industry lawsuit to end the “open banking” rule, which mandated free data access for authorized parties. JPMorgan CEO Jamie Dimon has been vocal about challenging what he views as unfair regulations.
The surge in data volumes and associated costs have prompted JPMorgan to reconsider its approach to data access. The bank has reported a significant increase in API calls over the past two years, with transactions involving data middlemen being more susceptible to fraud claims. JPMorgan estimates that fraud claims from ACH transactions initiated through aggregators could triple within 5 years.
Plaid, one of the largest players in the data access space, has defended its practices, stating that all activity begins with customer authorization. The company argues that calling a bank’s API when a user is not present is a standard industry practice for providing alerts and monitoring account activity. Plaid has also disputed JPMorgan’s claims of higher fraud rates among aggregators.
Negotiations between JPMorgan and the middlemen are ongoing, with proposed fee schedules potentially costing companies like Plaid up to $300 million in annual fees. The outcome of these discussions will likely shape the future of data access in the fintech industry.
As the debate over data access fees continues, both sides are working towards a new reality that is acceptable to all parties involved. Productive conversations have taken place, with the acknowledgment that changes may be necessary to align call volume with the costs associated with data access. The outcome of these negotiations will have implications for the broader fintech ecosystem and the future of open banking.
