In the spring of 2017, a group of bank and fintech executives gathered in Park City to hash out their differences over one of the most contentious issues in financial services: data.
The meeting in Utah's ski country treaded on touchy territory: the companies' long-standing disputes over data. Banks have complained that startups were essentially hacking into their systems to grab their customers' data through screen scraping, while fintechs accused banks of selfishly restricting access to information that legally belongs to account holders.
The meeting led to the creation of Financial Data Exchange, or FDX, a nonprofit consortium of more than 200 banks, fintechs and financial institutions, including Chase, Citi, PayPal, Plaid, Finicity and Experian. Its goal: to come up with the technology standards for accessing and sharing consumer financial data.
It's tedious, technical work which has gained urgency as the financial services industry braces for new rules around consumer financial data.
"Either we're going to resolve it, or the regulators are going to resolve it," Finicity CEO Steve Smith, who initiated the 2017 meeting and is now FDX chairman, told Protocol. "If we can't get together in a way that actually drives innovation and full data access, then the regulators will just step in and regulate around this."
The Consumer Financial Protection Bureau is expected to begin deliberations soon on new rules for giving consumers access to their financial data, especially with last week's confirmation of Rohit Chopra as the agency's new head. The new rules will be based on Section 1033 of the Dodd-Frank Act, a 2010 law which said "very clearly that the user owns the data, and they can direct that data to be sent, wherever they want it to be sent," Smith said.
But Dodd-Frank 1033 did not spell out how this will be implemented. That's where regulators come in.
FDX is not trying to come up with regulatory proposals or to advocate for specific proposals for what has also been described as open banking or open finance.
"We're not a trade group, we don't lobby or do any advocacy on policy," Tom Carpenter, the group's public affairs director, told Protocol. "Open finance has a 'what' and a 'how.' The 'what' are the big policy questions. The 'how' is well, how does the data move? We're the 'how.' We stay truly in the technical space."
He compared what FDX is trying to do to the creation of a widely used wireless technology standard.
"We see ourselves in the Bluetooth role," he told Protocol, noting how the tech industry managed to agree on a common set of standards for short-range wireless. "You make the headset, and then we'll certify it will let you use the symbol to say, 'Yep, this is going to work.'"
FDX is focused on two key questions, he said: "How do we get consumer data moving in a secure API-based way? And how do we move beyond the old days of screen scraping?"
Screen scraping refers to one of the key ways fintech companies gain access to data. Consumers who want to sign up for an app or make an online transaction are asked to share their usernames and passwords to give the app or ecommerce site access to their financial information.
The technology, which was pioneered by companies like Yodlee (now owned by Envestnet), emerged in the late 1990s when API connectivity was not that widely used. Even though it involved consumers giving a third party access to a bank's systems, usually without the bank's permission or knowledge, it was initially tolerated and even accepted by many in the financial services industry.
"I'm not sure screen scraping was ever okay," Gareth Gaston, U.S. Bank's chief digital officer for platforms and capabilities, told Protocol. "It was never a good thing for customers to be giving out their usernames and passwords." But he said "screen scraping was just the way things were done in the '90s," in the early days of fintech.
Alex Johnson, director of fintech research at Cornerstone Advisors, said banks initially didn't see screen scraping as a threat. He said the attitude in the beginning was, "Yeah, 10% to 15% of our customers want to use an app to do all this budgeting and that's fine. It's not ever going to be a huge competitive threat. It's not going to be a huge drain in terms of people hitting our servers all the time logging in."
That changed after the 2007-2008 financial crisis. A fresh wave of fintech startups introduced new apps and services that led to a surge of consumers giving startups access to their bank accounts. Smith said the success of the new fintech apps, powered by more powerful data access technology, "eclipsed everybody's initial expectations."
Finicity CEO Steve Smith says the industry needs to come together.Photo: Finicity
Banks subsequently started to push back harder on screen scraping. This was underscored by JPMorgan Chase CEO Jamie Dimon's comments in a January analyst call when he criticized new players that he said were "examples of unfair competition." He even mentioned the name of a fintech powerhouse. Dimon blasted "people who improperly use data that's been given to them, like Plaid."
Plaid became a fintech powerhouse through data aggregation technology that gave many startups unprecedentedly easy tools to access consumer data. That led to a wave of new fintech innovation. John Pitts, Plaid's head of policy, said the company's services focus primarily on API access, but turn to screen scraping for the many banks that don't have public or even private APIs.
Things change fast. Six months after Dimon's remark, Pitts noted, JPMorgan Chase was an investor in Plaid's series D round.
Despite the combative posture suggested by Dimon's comment, major financial institutions have actually started finding ways to work with data aggregators and fintech companies, including improving the way customers give apps access to their data.
"At the end of the day, you know, nobody really had any success in switching it off," Gaston of U.S. Bank said. "It doesn't do the customer any good."
Instead of picking fights with fintechs, major banks have started developing their own API-based data access technology. In 2018, Fidelity Investments, a founding member of FDX, launched Akoya Data Access Network to "overcome the challenges of screen scraping," a spokesperson told Protocol. Last year, 11 major banks, including JPMorgan Chase and U.S. Bank, joined the network as equal owners of Akoya, which formally joined FDX on its own in 2020.
Banks and financial institutions have also partnered with fintechs through data access agreements. In May, U.S. Bank announced that it was working with Plaid to offer a more secure API-based access to customer data. Wells Fargo announced a similar agreement with Yodlee in September 2020.
Johnson of Cornerstone Advisors said banks are "moving more proactively" because most now accept the reality that fintech "is here to stay" and resistance could be bad for business: "If your bank account is the reason why all of these fintech apps that you really like using don't work, pretty soon you're gonna start asking yourself as a consumer, should I switch banks?"
There's also a strong consensus in the financial services industry that screen scraping has to go. "Sunsetting screen scraping completely is the primary concern," Gaston said. Pitts agreed: "We are in the API business and in the business of eliminating the need for screen scraping."
But Carpenter said agreeing on a common API standard is critical; otherwise they'll end up with "a million different plugins." Pitts said that could turn into an "unbelievably expensive" scenario for both banks and fintechs: "That idea of having to maintain 10,000 different connections, have 10,000 different data formats and then manage all of that for the remainder of time — that sounds terrible."
There's also the risk of creating "a digital divide," Pitts said. Major banks with their big IT budgets have been able to develop their own API access technology about three years ago, he said. But "smaller banks don't have multibillion-dollar technology budgets," and may not easily be able to deploy alternatives to screen scraping.
This is where FDX is expected to play a critical role. The nonprofit's API technology, while still a work in progress, is already accessible to financial institutions, including those which are not FDX members. Small banks and credit unions can use it for free even if they don't join FDX.
Last month, Carpenter told a House Committee on Financial Services task force that banks and fintechs using FDX's API are already making it possible for 22 million consumers to share their data. "Less than three years since its founding, FDX is a roaring success," he testified.
But there are many other contentious issues beyond just agreeing on a common API-based standard. Most of these will have to be resolved in the CFPB process, though they've also come up in FDX's work.
"We've had plenty of debates as we've gone along in building standards," Carpenter said. "We think we can solve a lot of problems, but we're not a silver bullet, so we're not going to be able to fix everything."
One contentious issue is what data should be considered proprietary. "That's been the million dollar question: Where does consumer data ownership end? And where does proprietary data begin?" Carpenter asked.
For example: Should the interest rate offered by a bank to a consumer be shared or considered proprietary? It's a difficult question that will likely be resolved by regulators, and on which the FDX "just has to remain agnostic on," Carpenter said.
Standing aside may be challenging. The FDX must also navigate conflicting interests within its ranks. After all, many of its members are fierce competitors. Finicity, a data aggregator acquired by Mastercard last year, is a Plaid rival.
"It's not kumbaya all the time," Carpenter said. "You've got probably one of the most competitive marketplaces in financial services where you've seen enormous disruption."
But it's critically important work, he added.
"Frankly, if the CFPB and other regulators aren't going to provide proper guidance and keep up with the innovation curve, then it's up to leadership and organizations that come together from fintechs, banks, asset managers, insurance and other market participants, to hold one another accountable by proxy," Logan Allin, managing general partner of Fin Venture Capital, told Protocol.
Smith of Finicity agreed that the smart path for fintechs and banks is to grapple these issues by the horns.
"I'm optimistic that industry will come together," he said. "We're optimistic that the industry will do a better job than regulation is able to because regulation doesn't move at the speed that technology moves, and it often creates great hurdles."
