Open Banking and Payments Competition

The Hidden Battle Over Financial Data

I've been following fintech regulation for years, and most of it is exactly as boring as you'd expect. Credit cards work more or less the way people think they do. Debates about lending terms are plain enough that a non-specialist can follow along. But every so often you stumble on something operating entirely under the hood - a fight with real consequences that nobody outside a narrow circle of lobbyists and policy wonks is paying attention to.

Take Section 1033 of the Dodd-Frank Act. Sounds like a cure for insomnia, right? And yet in July 2025, JPMorgan Chase announced it would start charging fintech companies for access to so-called Open Banking data. That one move cracked open questions most consumers never think about: who actually controls the financial system's plumbing, and who gets to collect tolls on it.

Here's what caught my eye. Almost every public discussion frames this as a "data access" or privacy issue. But that's a smokescreen. This fight is about payments. Specifically, it is about whether banks have the right to monopolize and charge fees on all economic activity their customers engage in - even when the bank had nothing to do with the payment method being used. That's a very different kind of argument.

Origins: The Dodd-Frank Compromise

Dodd-Frank came out of the 2008 financial crisis. Part genuine reform, part negotiated settlement with banks that had made a killing on questionable mortgage originations and then left taxpayers holding the bag when those mortgages blew up. The usual Washington cocktail.

The Durbin Amendment

One of the consequences was the Durbin Amendment, which capped debit card interchange fees for large banks. Interchange is the cut businesses pay every time they accept a card payment - most of it flowing straight to the card-issuing bank. Banks lost a lucrative revenue stream. But here's the twist: the cap exempted small banks, and that little carveout accidentally created the revenue model that launched thousands of fintech companies.

Nobody did this to punish banks, exactly. It was a post-hoc concession extracted after taxpayers had ponied up approximately $245 billion to backstop the financial system during the crisis. Through the ordinary (messy, imperfect) workings of representative democracy, the public got something in return.

Section 1033: The Data Provision

Dodd-Frank also included another concession that didn't get much attention at the time: Section 1033. The idea was simple. Banks must allow customers to access their own financial data, including through competing third-party providers. Competition, in other words.

And competition showed up. The banks have grown to hate it. They would very much like it to go away.

How Open Banking Enables Payment Innovation

Banks sell customers complex bundles of services. So you might reasonably assume Open Banking is mostly about budgeting apps - banks sit on comprehensive data about household finances through account records, and software could import transactions for categorization, competing against whatever mediocre money-tracking feature the bank's own app offers.

That's not what this fight is about. Not even close. Banks don't make real money from budgeting tools. Mint, the most prominent standalone budgeting app, sold for a relatively modest sum. Payments, on the other hand, are an enormous business monetized by banks and a sprawling fintech ecosystem alike.

The Account Number Problem

What banks really don't want to share is account numbers. Because of the long shadow cast by paper checks, having someone's account number (plus the routing number that identifies the bank) is enough to attempt debiting that account. Direct account-to-account transfers exist as common payment methods in dozens of countries. In the United States? They're a tiny slice of consumer-to-business payments.

Why so little adoption here? The user experience of asking for an account number is terrible. There's no real-time way to verify an account even exists. Credit card numbers, by contrast, run on infrastructure that allows instant queries and are specifically formatted so a typo gets flagged before anything goes through.

And if you can't confirm whether an account exists, you definitely can't check its balance or whether a transaction posted today will actually clear - or get reversed for insufficient funds three days later. Any business releasing goods immediately upon "payment" via account transfer would eat credit losses constantly. For most businesses, that math doesn't work.

So they use cards. Cards give you much stronger (not foolproof, but much stronger) real-time guarantees that funds are available and the transaction will stick. The ergonomics are better too - tapping at registers, paying through phones, entering numbers in web browsers. Customers actually tolerate it.

Fintech's Breakthrough

Several fintech companies figured out something clever: they could use Open Banking to make account-to-account payments genuinely painless. At checkout, you get asked whether you'd like to pay directly from your bank account. You log into your bank, grant the fintech read access, and that's it. This provides a far stronger authorization signal than simply knowing an account number - we print those on every check, after all, and hand checks to strangers.

The fintech grabs the account number, maybe peeks at the current balance. Then they pull money through an ACH debit - the same payment rails that have existed for decades. Open Banking just made ACH debits dramatically more convenient. That's the whole trick.

The Cost Advantage

ACH debits aren't new. Businesses have used them forever for recurring bills - utilities, mortgages, credit card payments themselves. They've just been a nightmare for online payments or anything at a register, so nearly all consumer-to-business transactions flow over card rails instead.

But ACH debits are almost free. NACHA, which administers the ACH network, charges a per-transaction fee of 1.85 hundredths of a cent. That's not a typo. Compare that 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 the bank that issued the card. So is it any surprise that banks would strongly prefer the world not develop novel payment methods that are convenient and cost businesses dramatically less? They care about Section 1033 because they want to keep earning interchange on your coffee and your SaaS subscriptions. Full stop.

Beyond Payments: Infrastructure Uses

Payments get all the attention, but they're not the only thing Open Banking is good for. Useful infrastructure has a way of worming into everything once it exists.

Account Verification

If you've opened a brokerage account recently or dealt with a crypto company, you've probably been pushed through an Open Banking flow to link your existing bank account for funding investments and receiving returns. You may not have even noticed.

Older users will remember the alternative. Brokerages used to make two tiny ACH payments - under $1 total - and ask you to confirm the exact amounts. This proved you hadn't fat-fingered your account number, that the account could accept transfers, and that you presumably had authorized access since you could read recent transactions. A Rube Goldberg machine for identity verification.

Those trial transactions were painful for everyone involved. Multi-day waits got inserted into what should be a quick account-opening process, and tons of customers just gave up during the lull. Brokerages and fintechs were overjoyed when Open Banking killed the need for this ritual.

Authority Verification

Here's a clever one. Open Banking lets you use banks as oracles. Say you're a financial institution and you need to know whether a specific person has authority to direct a business LLC to open new accounts. The traditional approach? Request Articles of Organization and Certificates of Good Standing, then pay paralegals to review them. Expensive. And plenty of small businesses can't even find authoritative copies of their own formation documents (which tells you something about how useful those documents are in practice).

A 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. Saves the ops team from reviewing boilerplate. Cuts account opening time dramatically.

The Regulatory Fight

Open Banking has existed for close to fifteen years. So why is it suddenly in the headlines? Because the competing payment products work. They cost businesses less. Customers like them. Not every customer has switched, but enough have that banks want to strangle the upstarts before they grow any bigger.

CFPB Rulemaking

The Consumer Financial Protection Bureau finalized its rule for Section 1033 in late 2024. The fourteen-year lag between Dodd-Frank's passage in 2010 and actual rulemaking tells you how involved (and politically fraught) this process was.

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 that would require Congressional approval. Fair or not, that is how it was perceived.

After the 2024 election, influential campaign supporters wanted the CFPB's scalp. And they essentially got it - the agency was hollowed out early in the new administration. Then came a swift, almost comical ironic turn: a policy that the crypto industry had championed (because they were frustrated with big banks' arbitrary decisions) got weaponized by those same banks for commercial advantage. Crypto companies ended up as collateral damage in a fight they'd helped start.

The Lawsuit

The Bank Policy Institute and Kentucky Bankers Association sued to block the CFPB's rulemaking from taking effect. Their legal arguments, frankly, look pretextual to anyone who has spent time with the underlying statute. Their policy arguments against Open Banking's normative intent are more interesting and worth engaging with.

The CFPB initially fought back hard. But the hollowed-out agency announced in June it would surrender. Chaos in Washington. Section 1033 is administered by the CFPB but it's part of the financial regulatory apparatus that crypto companies actually support - one of the few pieces they do.

The Crypto Angle

Exchanges make their money by charging fees on crypto purchases. The "onramp" - moving dollars from traditional finance into crypto - enables everything else they do. And exchanges want the cheapest possible onramp. That's ACH debits enabled by Open Banking.

The legal wrangling continues. Predicting outcomes in the current political environment is a mug's game.

Chase's Surprise Bills

Chase is the largest U.S. bank, serving approximately 44 million checking account customers. That is a lot of transaction volume flowing through the financial system.

To avoid the ugly alternative of adversarial screenscraping (bots logging into banking apps, which is unreliable and punches security holes), the better Open Banking approach involves negotiating API access with banks directly. APIs let developers pull data safely and in controlled ways. This typically requires contracts - companies agree not to steal money, hack servers, or abuse customer expectations. Reasonable stuff.

Most aggregators already had agreements with Chase. The bank actively promotes API access to developers. Then in July, Chase started mailing aggregators notices about upcoming contract changes. And these weren't the usual "we updated our privacy policy" boilerplate that everyone ignores. They were substantive. Chase wanted payment for Open Banking API access - and threatened to cut off anyone who didn't agree.

The fees were staggering. 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. Out of thousands.

Plaid was reportedly asked for $300 million - 75% of their 2024 revenue and almost certainly more than total wages and benefits for all 1,200 employees. I generally tell companies they should charge more. But these don't look like serious proposals for reasonable pricing of a valuable service. They look like kill shots.

PNC is also reportedly mulling fees for fintech data access. The table gets crowded fast if even a fraction of the next 4,500 banks pile on.

Banks' Arguments

Banks have published their arguments directly and through industry associations. I've read them carefully. They are not particularly persuasive.

Fraud Risk

This is the strongest card in their hand. Banks bear real risk when authorizing third parties to use Open Banking. Those parties might siphon value from accounts. Customers might authorize transactions and then come back asking the bank to make them whole after getting scammed.

Banks do bear this fraud risk. It's similar to paying out fraudulent checks until the money gets clawed back through transaction reversals. And it resembles what banks already deal with under Regulation E for debit cards and Regulation Z for credit cards. If consumers get burned over card rails, banks are on the hook by regulation, less a $50 deductible that the industry universally waives anyway.

Banks are perfectly happy shouldering that responsibility for cards. Why? Because card issuing prints money.

But Regulation E covers almost any electronic payment form. Account-to-account payments look more like checks than cards. Banks take occasional fraud losses on checking accounts but mostly can't charge for checks directly. Customers expect to write them for free. Businesses expect to deposit them for nominal fees at most. If someone proposed check fees that scaled with check size, they'd be laughed out of the room - that is check-cashing store territory, not what regulated institutions or their customers expect.

Low Checking Account Margins

In his 2024 shareholder letter, Chase's CEO complained that typical retail checking accounts are low- or negative-margin businesses. He is probably right about that specific accounting exercise. But Chase runs checking anyway because it's the foundation of household relationships, which get monetized through credit cards and mortgages. The deposit franchise is most valuable when it attracts retirees and small businesses keeping larger balances at minimal interest rates.

As a cost of acquiring that business, Chase offers accounts to teenagers cashing summer job paychecks. Those accounts might bleed money for a decade. Banks do this willingly.

So the suggestion that retail checking is somehow threatened by banks' responsibility to monitor transactions and pay out authorization mistakes? That insults the intelligence of anyone who has spent a week inside a bank.

Checking accounts are also a public service that society expects in return for banks' lucrative monopolies on industries like consumer debt issuance - plus the explicit and implicit taxpayer backstops that keep the whole system running. Chase knows those backstops intimately. Most recently they cashed a $13 billion sweetener check to acquire a failed bank. Not bad work if you can get it.

Society has made enormous strides banking almost everyone. That should not be twisted into an argument that banks get to toll every transaction in the economy.

Technology Investment

Banks argue fintechs are freeriding on the substantial technology investments banks have made to serve customers. This one takes some nerve. Stripe alone processed over $1.4 trillion in payment volume in 2024, which implies approximately $20 billion in interchange fees flowing to the banking industry.

Twenty billion dollars. From one company. It is, to put it mildly, rich to cash a $20 billion check and then complain about fintechs freeriding on your IT budget.

The Case for Payment Innovation

Credit cards are enormously lucrative for banks, and the ability for businesses of all sizes to transact with customers worldwide over card rails has provided enormous service to the world. Nobody serious is arguing we should abolish credit cards.

But cards can't be the last word in payments. Society should keep building things people want. And sometimes the natural way to buy those things won't fit neatly into cards or the business model assumptions built around them.

Stablecoins and Modern Rails

There is a lot of recent enthusiasm for stablecoins, including breathless sales pitches about bypassing the traditional financial system entirely. In practice? That's not how stablecoin businesses with any real volume actually operate. They run what I'd call a crypto mullet - stablecoins in front, bank transfers in back. And those bank transfers depend heavily on Open Banking, which becomes more necessary as stablecoin businesses increasingly interact with the real economy. You know, the one that wants actual dollars, not entries in crypto speculation databases.

Payment Diversity

People - especially at the socioeconomic margins - increasingly use things beyond plastic rectangles. Cash App. Venmo. Phone-integrated wallets. Whatever next week's YC company invents. Our international peers have thriving payment ecosystems we can barely imagine here.

Developing these innovations almost always requires touching banking systems, because businesses ultimately want dollars. If we hand banks the power to impose fees on any transaction that competes with their card business, some innovations will die in the cradle. And that would be a shame - customers and businesses both benefit when they have more than one way to pay for things.

Keeping Banks Competitive

Competition keeps banks sharp. The industry has a long history of sleepwalking on core services. Bank apps have gotten quite good in recent years, and that wasn't an accident or the natural march of technical competence. Banks invested deliberately after decades of neglect because they watched younger generations defecting to apps, threatening the deposit franchise that underpins everything.

Banks are not inherently opposed to shipping good products. They do it all the time. But ask a slightly different question - would they happily bankrupt anyone threatening a fat revenue stream? - and the answer is obviously yes. In that world, you're stuck using a 1999 banking website on Internet Explorer 5.0 until the heat death of the universe.

The Competitive Solution

Banks are good at a lot of what they do. Quite profitable too. If they want to maintain wallet share in payments, they employ plenty of intelligent people who can ship good products. Let them compete for business. They will frequently win it fair and square.

But when customers choose to use someone else - or when they mistakenly release payment to a fraudster - that's part of running a checking account business. Open up Excel. Try again tomorrow.

We should not let banks develop a habit of sending demand letters designed to ruin the economics of businesses they simply don't like. Those demand letters will get abused, inevitably, including in ways that have nothing to do with any conceivable direct business interest.

When banks peer into customers' economic lives to set pricing structures, we hand them the power 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. From Chase's side, these are the same products - same servers, same data, same customer service rep on standby. But one threatens Chase's interchange revenue, so they want to charge more to discourage it. The quiet part said loud.

Conclusion

This fight is not about data security or privacy. Those are pretexts. It is about whether banks can monopolize payment infrastructure and charge rent on all economic activity - regardless of whether they actually provide value in any given transaction.

The financial system works best when multiple payment methods compete on merit. Cards are excellent for a lot of use cases and will keep dominating where they genuinely offer superior value. But artificially protecting card interchange by strangling competing payment methods through data access fees? That kills innovation and eventually hurts the people the system is supposed to serve.

Open Banking enables useful things well beyond cheaper payments - faster account opening, better verification systems, more accessible financial services for underserved populations. These benefits make a strong case for protecting Open Banking access from monopolistic gatekeeping.

Society has repeatedly decided that banks, in return for their lucrative privileges and taxpayer backstops, have obligations to serve the public interest alongside shareholder interests. Providing reasonable data access so other companies can compete in payment methods is a pretty modest ask, given everything banks get in return.