JPMorgan Chase is planning to charge fintech companies hundreds of millions of dollars for access to customer banking data in a move that will send tremors rippling through financial services. This ground-breaking move will redefine the business models throughout the fintech ecosystem that have long been used to provide free access to customer data. The accusations will come into effect at a later date in the year as the regulatory developments unfold.
JPMorgan leads banking industry’s data monetization revolution
JPMorgan Chase has sent documents to data aggregators detailing new fees for accessing the customer bank account information, with the fee amount contingent on how a company uses the data. These increased charges are directly related to the payments-focused companies, while the bank touts its massive investment in developing secure systems that keep consumer data secure. The fees were not set in stone and may be negotiated, but they represent a paradigm shift in the way banks view their customer data as a revenue source.
Most Fintechs can have premium access to bank data through aggregators like Plaid Inc. and MX, and those are the technical infrastructures that bridge the gap between the Fintechs and the banks. These new charges can be transferred from the aggregators through to the fintech companies and eventually on to the consumers, and would create a cascading cost structure through the financial technology ecosystem that could have a dramatic effect on pricing strategies. Venmo, Coinbase Global, and Robinhood Markets: all of these companies, to some extent, rely on access to customers’ bank accounts for their basic business models.
Hidden detail reveals devastating impact on fintech profitability
JPMorgan’s proposed fees in some cases would exceed the revenue generated for some businesses in a single transaction by as much as 1000%. This soaring cost spells complete disruption of the fintech industry’s business model, which has been premised on access to free customer banking data through open banking schemes.
In the extreme, this steep fee structure will put many fintech companies in the position of either dramatically raising their prices to the marketplace or drastically reimagining their business models in order to stay profitable. This cost multiplier of 1000% is an existential risk to companies that have low margins and require high transaction volumes to act as revenue drivers.
Open banking regulations are leading to a grey regulatory environment
The move comes while the future of controversial data-sharing regulations remains uncertain after the open-banking regulations went into effect in October, which permit consumers to request, download, and transfer their data to other financial services providers at no charge. The banking industry raised a quick legal complaint on the measure, citing that such an arrangement would make it easier for fraud to occur and could hold them liable to a greater extent. Under Donald Trump, the much-mutilated Consumer Financial Protection Bureau has petitioned a federal judge to void the open-banking rule – and its future is at risk.
“We’ve had productive conversations and are working with the entire ecosystem to ensure we’re all making the necessary investments in the infrastructure that keeps our customers safe.” – JPMorgan spokesperson
Data access fee structure:
- Basic account data:ย IIary rates.
- Customer-centric services: Premium prices
- Premium information (emails, mortgages):ย Maximum rates
- Transaction volume tiers: Pricing models to scale.
Whereas access to banking data used to be freely available, the challenge for the financial technology industry is of an unprecedented nature, as the free access progressively becomes a massive cost center.ย With regulatory uncertainty persisting and heavy incumbent banks following JPMorgan’s footsteps, fintech companies will have to wake up quickly to change their business models or become financially unsustainable in this novel era of data monetization.
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