Open Banking and Payments Competition

The Hidden Battle Over Financial Data

Most aspects of the financial industry operate transparently. Credit cards work essentially as consumers understand them. Debates about lending terms are straightforward enough for non-specialists to follow. But some critical issues operate under the hood, with consequences that aren't immediately apparent from surface discussions.

Consider the seemingly obscure Section 1033 of the Dodd-Frank Act - a topic that could cure insomnia if presented poorly. Yet in July 2025, JPMorgan Chase announced its intention to charge fintech companies for access to so-called Open Banking data, sparking a controversy that reveals fundamental questions about who controls the financial system's infrastructure and who profits from it.

Almost all public discussion centers on "data access" and privacy concerns. But this fight isn't really about data - it's about payments. Specifically, it's about whether banks have the right to monopolize and charge fees on all economic activity their customers engage in, regardless of whether the bank actually operates the payment method being used.

Origins: The Dodd-Frank Compromise

The Dodd-Frank Act emerged from the 2008 financial crisis as a combination of needed reforms and negotiated settlements with banks that had profited enormously from questionable mortgage originations while leaving taxpayers to absorb the losses when those mortgages failed.

The Durbin Amendment

One consequence was the Durbin Amendment, which capped debit card interchange fees for large banks. Interchange is the fee that businesses pay to accept card payments, with most going to the card-issuing bank. While banks lost a lucrative revenue stream, this cap inadvertently created the revenue model that launched thousands of fintech companies by exempting small banks from the cap.

This wasn't done because banks particularly deserved punishment. It was a post-hoc concession extracted after taxpayers provided approximately $245 billion to backstop banks during the crisis. Through the ordinary operation of representative democracy, the public got something in return.

Section 1033: The Data Provision

The Dodd-Frank Act included another concession: Section 1033, designed to increase financial services competition by establishing that banks must allow customers to access their own financial data, including through competing third-party providers.

In the years since, that competition has indeed arrived. The banks have grown to dislike it intensely and would prefer if it disappeared entirely.

How Open Banking Enables Payment Innovation

Financial institutions offer customers complex bundles of services. You might reasonably assume Open Banking primarily affects budgeting apps - after all, banks possess comprehensive data about household finances through account records. Software could use Open Banking to import transactions for categorization, competing against banks' mediocre app offerings.

But Open Banking isn't actually a fight over budgeting apps. Banks don't make substantial money from budgeting tools, and the most prominent standalone budgeting app, Mint, sold for a relatively modest sum. Payments, conversely, represent an enormous business monetized by both banks and a diverse fintech ecosystem.

The Account Number Problem

The data banks find most annoying to share is principally account numbers. Due to the long shadow of paper checks, possession of an account number (plus the routing number identifying the bank) is sufficient to attempt debiting a bank account. Direct account-to-account transfers exist as common payment methods in many countries but represent only a small share of consumer-to-business payments in the United States.

Why the limited adoption? The user experience of requesting account numbers proves terrible. No real-time verification exists for whether an account actually exists. Credit card numbers, by contrast, use infrastructure allowing real-time queries and are specifically formatted so typos are easily detected.

Without knowing if an account exists, you certainly can't determine its current balance or whether a transaction posted today will succeed or be reversed for insufficient funds days later. Businesses using account transfers as payment would frequently suffer credit losses if releasing goods or services immediately upon "payment." For most businesses, this tradeoff isn't worthwhile.

So they use cards instead. Cards provide much stronger (though not foolproof) real-time guarantees of fund availability and transaction success probability. The ergonomics of card acceptance - at registers, through phones, or in web browsers - also prove far more palatable to customers.

Fintech's Breakthrough

Several fintech companies realized they could use Open Banking to make account-to-account payments genuinely customer-friendly. At checkout, users are prompted whether they'd like to pay directly from their bank account. They log into their bank and grant the fintech read access. This provides much stronger authorization signal than simply knowing an account number - we print those on every check, after all, which get handed to strangers.

The fintech grabs the account number and perhaps checks the current balance. Then they pull money from the account through an ACH debit - the ordinary operation of existing payment rails. Open Banking just made ACH debits dramatically more convenient.

The Cost Advantage

ACH debits aren't new - businesses have used them for decades for recurring bills like utilities, mortgages, and credit cards. They've just been very annoying for online payments or point-of-sale transactions, so almost all consumer-to-business payments flow over card rails instead.

ACH debits are almost free. NACHA, which administers ACH, charges a per-transaction fee of 1.85 hundredths of a cent. This compares extremely favorably to:

• Regulated debit cards: 21 cents plus 5 basis points
• Durbin-exempt debit cards: Roughly 2% plus 20-30 cents
• Credit cards: Generally 2-3% plus 20-30 cents

The interchange fee flows mostly to card-issuing banks. Banks would strongly prefer the world not develop novel payment methods that are convenient and cost accepting businesses dramatically less than cards. They're interested in Section 1033 because they want to continue earning interchange revenue on coffee purchases and software subscriptions.

Beyond Payments: Infrastructure Uses

Payments aren't the only valuable Open Banking application. Useful infrastructure, once it exists, gets incorporated into everything.

Account Verification

When opening brokerage accounts or engaging with crypto companies, you'll likely pass through an Open Banking flow to link your existing bank account for funding investments and receiving returns.

Older users remember this required trial transactions - brokerages making two ACH payments under $1 total and asking you to confirm amounts. This demonstrated you hadn't mistyped your account number, that the account could accept transfers, and that you presumably had authorized access since you could read recent transactions.

Trial transactions proved painful for all parties, inserting multi-day waits into account opening with many customers abandoning the process during that lull. Brokerages and fintechs were overjoyed when Open Banking largely eliminated the need for trial transactions.

Authority Verification

Open Banking enables clever uses of banks as oracles. How do you, a financial institution, know that a particular person has authority to direct a business LLC to open new accounts? Traditionally, you'd request Articles of Organization and Certificates of Good Standing, then have paralegals review them. This costs money and many small businesses struggle to locate authoritative copies of formation documents.

A much faster approach: use an Open Banking aggregator to read a bank account statement issued to the LLC. If someone habitually directs a small business's banking - demonstrated by granting access to its accounts - they probably direct that business's banking. This saves operations teams from reviewing boilerplate and cuts account opening time dramatically.

The Regulatory Fight

Why is Open Banking suddenly newsworthy after existing for nearly fifteen years? The competing payment products work well, cost accepting businesses less, and attract customers. Not all customers have switched, but enough to worry banks into wanting to strangle the upstarts.

CFPB Rulemaking

The Consumer Financial Protection Bureau finalized its rule for Section 1033 in late 2024. The lag between 2010 (when Dodd-Frank passed) and 2024 reflects an involved process.

The CFPB under the first Biden administration was not beloved by many in finance or fintech. Critics alleged it operated less as a federal agency than as a vehicle for Senator Elizabeth Warren's preferred policies, implemented through rulemaking rather than legislation requiring Congressional approval.

Following the 2024 election, influential campaign supporters wanted the CFPB's scalp. They essentially got it - the agency was hollowed out early in the new administration. In a swift ironic turn, a policy promoted by the crypto industry due to frustration with large banks' decisions was quickly used by those same banks for commercial advantage, catching crypto companies in the crossfire.

The Lawsuit

The Bank Policy Institute and Kentucky Bankers Association sued to prevent the CFPB's rulemaking from taking effect. Their legal arguments appear pretextual to informed observers. Their policy arguments against Open Banking's normative intent are worth examining.

The CFPB initially defended vigorously, but the hollowed-out agency announced in June its intention to surrender. This created chaos in Washington, as Section 1033 is administered by the CFPB but represents part of the financial regulatory apparatus that crypto companies actually support.

The Crypto Angle

Exchanges largely monetize by charging fees on crypto purchases. The "onramp" - transferring money from traditional finance to crypto - enables the rest of their revenue. Exchanges want the lowest-cost onramp, which is ACH debits enabled by Open Banking.

The legal wrangling continues with unpredictable outcomes given the current political environment.

Chase's Surprise Bills

Chase, the largest U.S. bank serving approximately 44 million checking account customers, represents hefty transaction volume within the financial system.

To avoid adversarial screenscraping of banking apps (unreliable and creating security holes), the better Open Banking approach is negotiating API access with banks. APIs let developers access data safely and controllably. This typically requires contracts obligating companies not to steal money, hack servers, or abuse customer expectations - all reasonable requests.

Most aggregators had agreements with Chase, which eagerly promotes API access to developers. In July, Chase started sending aggregators notices about upcoming contract changes. Unlike typical "we updated our privacy policy" notices, these were substantive. Chase demanded payment for Open Banking API access and threatened to cut access without acquiescence.

The fees demanded were enormous. A fintech trade group told the Financial Times that across all companies receiving notices, the cost of just accessing Chase data ranged from 60% to well over 100% of their annual revenue - from one bank alone.

Plaid was reportedly asked for $300 million - 75% of their 2024 revenue and likely more than total wages and benefits for all 1,200 employees. Even for someone who typically advises companies to charge more, these don't resemble serious proposals for reasonable pricing of valuable services.

PNC is also reportedly considering charging fintechs for data access. The table gets crowded quickly if even a fraction of the next 4,500 banks try joining.

Banks' Arguments

Banks have published their arguments directly and through industry associations. They're not particularly persuasive.

Fraud Risk

The strongest argument: banks bear risk when authorizing third parties to use Open Banking. Those parties might exfiltrate value from accounts. Customers might authorize transactions then request banks make them whole after being scammed.

Banks bear this fraud risk, similar to paying out fraudulent checks until recovering money by reversing transactions. This resembles banks' obligations under Regulation E for debit cards and Regulation Z for credit cards. If consumers get abused over card rails, banks are liable by regulation, less a $50 deductible the industry universally waives.

Banks are happy with this responsibility for cards because card issuing prints money. But Regulation E covers almost any electronic payment form.

Account-to-account payments more closely resemble checks than cards. Banks occasionally take fraud losses over checking accounts but mostly can't charge for checks directly. Customers expect to write them freely and businesses expect to deposit them for nominal fees at most. Suggesting check fees scaling with check size would be laughed out of boardrooms - that's check-cashing store nonsense, not something regulated institutions or customers expect.

Low Checking Account Margins

In his 2024 shareholder letter, Chase's CEO lamented that typical retail checking accounts are low- or negative-margin businesses. But Chase operates checking anyway because it's the foundation of household relationships, monetized through credit cards and mortgages. The deposit franchise is most valuable when attracting retirees and small businesses keeping larger balances earning minimal interest.

As a cost of acquiring that business, Chase offers accounts to teenagers cashing summer job paychecks, even though those accounts might be negative-margin for ten years.

Suggesting retail checking availability is threatened by banks' responsibility to monitor transactions and pay out authorization mistakes insults the intelligence of anyone familiar with banking.

Checking accounts are also a public service expected by society in return for banks' lucrative monopolies on industries like consumer debt issuance and explicit and implicit taxpayer backstops of their operation. Chase is intimately familiar with those backstops - most recently cashing a $13 billion sweetener check to acquire a failed bank.

Society has made enormous strides banking almost everyone. That shouldn't imply banks get to charge fees on every transaction in society.

Technology Investment

Banks argue fintechs are freeriding on substantial technology investments made to serve customers. This demonstrates extremely selective memory. Stripe alone processed over $1.4 trillion in payment volume in 2024, implying approximately $20 billion in interchange fees paid to the banking industry.

Twenty billion dollars. From one firm alone. It's rather rich to cash a $20 billion check then complain about fintechs freeriding on IT spend.

The Case for Payment Innovation

Credit cards are enormously lucrative for banks. The capability for businesses of all sizes to transact with customers worldwide over those rails provides enormous service to the world.

But cards cannot be the last word in payments. Society should continue making things people want. Sometimes, the natural way to buy those things will be less compatible with cards or card business model assumptions.

Stablecoins and Modern Rails

Recent enthusiasm for stablecoins includes sales pitches about bypassing traditional financial system rails. This doesn't accurately predict how stablecoin businesses with material volume actually operate - they often run a crypto mullet with stablecoins in front and bank transfers in back. Those bank transfers are substantially facilitated by Open Banking, necessary for stablecoin business growth as they increasingly interact with the real economy wanting dollars, not just crypto speculation databases.

Payment Diversity

People, particularly at socioeconomic margins, increasingly use things beyond plastic rectangles - Cash App, Venmo, phone-integrated wallets, or next week's YC company invention. Our international peers have thriving payment ecosystems.

Developing these innovations almost always needs to touch banking systems because businesses ultimately want dollars. If we award banks the ability to impose fees on any transaction competing with their card business, that will strangle some innovations. This would be unfortunate - customers and businesses benefit from choice.

Keeping Banks Competitive

Competition helps keep banks on their toes. The industry tends to sleepwalk regarding core services. Bank apps becoming quite good in recent years doesn't simply reflect general technical competence - they invested deliberately after decades of underprioritization because they saw younger generations defecting to apps, threatening the deposit franchise.

Banks aren't inherently opposed to shipping good products - they do it frequently. But asked slightly differently, they'll happily bankrupt anyone threatening fat-and-happy revenue streams. In that world, you use 1999 banking websites on Internet Explorer 5.0 forever.

The Competitive Solution

Banks are good at much of what they do, and it's quite profitable. If they want to maintain payment business wallet share, they employ intelligent people capable of shipping good products. Let them compete for business. They'll frequently win it fair and square.

But if customers choose to use someone else or mistakenly release payment to fraudsters, that's part of operating a checking account business. Break out Excel and try better tomorrow.

We should not allow banks to develop habits of sending demand letters to ruin economics of businesses they simply don't like. Those demand letters will inevitably be abused, including in ways not determined by any conceivable direct business interest.

When banks look into customers' economic lives to determine pricing structures, we're giving them capability to pick winners and losers. Chase reportedly wants two-tier Open Banking pricing: one fee for data access and another, much higher fee if someone uses that data for payments. These are the same products from Chase's perspective - same servers, same data, same CSR standing ready. But one is inimical to Chase's preferences, so they charge more to discourage it.

Conclusion

The fight over Open Banking isn't really about data security or privacy - those are pretexts. It's about whether banks can monopolize payment infrastructure and charge rent on all economic activity, regardless of whether they provide value in specific transactions.

The financial system works best when multiple payment methods can compete on merit. Cards are excellent for many use cases and will continue dominating where they provide superior value. But artificially protecting card interchange by strangling competing payment methods through data access fees harms innovation and ultimately consumers.

Open Banking enables genuinely useful services beyond just cheaper payments - faster account opening, better verification systems, and more accessible financial services for underserved populations. These benefits justify protecting Open Banking access from monopolistic gatekeeping.

Society has repeatedly decided that banks, in return for their lucrative privileges and taxpayer backstops, must serve public interests alongside shareholder interests. Providing reasonable data access to enable competition in payment methods represents a modest expectation given banks' favored position in the financial system.