Financial Services Will Be Shaped By Data Sharing

Recently, fintechs and large banks have clashed over who should have access to customer data.

Fintechs often rely on connections to their customers’ bank accounts in order to deliver products and services. Banks, on the other hand, do not want to be deposit hotels where customers are storing money until they can move it some place better because they worry about losing the customer. Additionally, banks are worried that allowing outside companies to access their customers’ data will lead to more identity thefts and hacks.

An example of this is the recent disruption connections between PNC Bank and Venmo accounts. In December, PNC Bank customers could not connect their bank accounts to their Venmo accounts. The Wall Street Journal reported that the bank had updated its data security systems and that led to it blocking access from a company called Plaid, which is a data aggregator that works with multiple fintechs to provide connections to bank accounts. PNC did suggest in tweets that its customers use Zelle, which is a person-to-person app provided through a consortium of banks.

Plaid links third-party apps to bank accounts using a process called screen-scraping, which essentially allows the app to log into a customer’s bank account by storing their logon credentials.

PNC was not the only bank in this kind of conflict. The American banker reported on Jan. 2 that J.P. Morgan Chase also planned to block screen scrapers of all kinds. This is interesting because in October 2018, Chase has signed an agreement with Plaid and three other companies to provide data through a secure API, according to the American Banker.

The Wall Street Journal reported on Jan. 13 that Visa has struck an agreement to acquire Plaid, which will further shake up the Fintech industry.

But Plaid is not the only player in the data sharing space. Since companies are not thrilled by their customers handing out login credentials to third parties, a group of financial services companies created the Financial Data Exchange to facilitate secure data sharing through an API. (Visa is a member of the Financial Data Exchange.)

In the latest episode of the Innovative Payments Pod, the IPA talks with Don Cardinal, managing director of the Exchange about its API and how it works. You can find it here or wherever you get your podcasts.

Data sharing is critical to many Fintechs as they work to help aggregate customers’ financial data and help their users make financial choices. The payments industry will no doubt be affected by the outcome of this merger and the outcome of the conflict that is playing out in the background.