Jamie Dimon, CEO of JPMorgan Chase & Co., International Institute of Financial Research (IIF) during the annual meeting of the IMF and World Bank in Washington, DC, USA on Thursday, October 24, 2024.
Kent Nishimura | Bloomberg | Getty Images
JPMorgan Chase says Fintech Middlemen (a company that has helped a new generation of financial apps connect with traditional checking accounts) is flooded with banking systems with unnecessary data requests.
An employee of the JPMorgan system wrote in an internal note to retail payment head Melissafeldshire last week, “Aggregators access customer data multiple times every day, even when customers aren’t actively using the app.” “These access requests are highly taxed on our system.”
According to a memo seen by CNBC, of the 18.9 billion data requests from Middlemen that hit JPMorgan’s system in June, only 13% were launched by customers of the transaction.
Most of the data pull, known as API calls, is intended to help fintech companies improve their products, prevent fraud, and harvest data harvesting for sale, said someone with knowledge of the notes identified in a talk between JPMorgan and Fintechs.
JPMorgan, the largest US bank by assets, is preparing to charge new fees from intermediaries for access to a system that is said to be increasingly expensive to maintain. Negotiations are ongoing between JPMorgan and Fintech Middlemen, but new fees could begin in October, people with knowledge of the matter said.
Banking moves could lead to a drastic change in the fintech ecosystem, which flourished as aggregators such as plaid and MX connected traditional banks to new arrivals. API access has been free for years, and Fintech Upstarts can now offer accounts with free checking or trading services.
Things changed in May after the Consumer Financial Protection Agency filed a motion in favour of a banking industry lawsuit seeking to end the so-called “open banking” rules.
The rules were finalised by the Biden-era CFPB in the months of its administration, requiring banks to provide data free of charge to permitted parties. A week after the rules passed, JPMorgan CEO Jamie Dimon called on bankers to “fight back” for what he said was an unfair regulation.
Surge in volume
This month, news that JPMorgan was planning to request customer data first reported by Bloomberg led to accusations from venture capital investors, fintech and crypto executives.
However, JPMorgan is experiencing rising costs by maintaining the infrastructure needed to surge in volume, while also maintaining the growing number of fraud claims related to payments made in the fintech ecosystem.
According to the memo, the total amount of API calls received by JPMorgan has more than doubled in the past two years.
According to the memo, transactions sent via electronic ACH transactions were 69% more likely to lead to fraud claims if data brokers were involved.
JPMorgan saw a fraud claim of approximately $50 million from ACH transactions launched via aggregators. This is the number banks expect to triple within five years.
Of the 13 fintech companies tracked in bank notes, more than half of their June activities came from a single company, including 1.08 billion API requests. Although no companies have been appointed, CNBC has learned that the largest player represented in the data is plaid.
JPMorgan’s data shows that only 6% of Plaid’s API calls were started by customers.
Plaid co-founders William Hockey and Zach Pellett
Source: Plaid
Allow access
In a statement to CNBC, Plaid said the figures “misinforming how data access works.” Of course, many customers do not read the long “Terms of Use” page, which includes data sharing disclosures before opening a new account.
“Invoking a bank’s API after a user has granted a connection is a standard industry practice supported by all major banks to help consumers get important alerts of overdraft fees or suspicious activity,” Plaid told CNBC.
Plaid also said JPMorgan’s claims of higher fraud among aggregators were “misleading.”
“It’s not surprising that the amount of data access is increasing along with consumer demand for smarter, faster, faster and more coordinated financial tools,” Plaid said.
“To be clear, we believe it is essential that the data sharing ecosystem works for everyone, including consumers, fintech developers, and financial institutions. Many of them use open banking with their own products.”
According to a report by Forbes, the proposed fee schedule distributed by JPMorgan could potentially pay a new annual fee of $300 million.
Other companies tracked in JPMorgan documents are much smaller entities. Only four other intermediaries registered more than 100 million monthly API calls.
Bids spread
If the Biden-era “open banking” rules are surprised by the courts, the main question is not whether intermediaries have to pay for the data, but how much they have to pay.
The front and back of JPMorgan and the intermediary is a personal process that spills into public places to reach a new reality that is acceptable to everyone.
JPMorgan has had productive conversations with several data aggregators who have admitted that they can change the way data is drawn if it is not free, according to people with negotiation knowledge.
“I think both parties fully acknowledge that there are things that can be done with a right-sized call volume,” the person said.
