Protocol | Fintech

Open banking in the US seems impossible. Here’s why.

Treasury Prime's Chris Dean explains why systematic access to financial data isn't an easy goal for the world's biggest economy to realize.

A view from One World Trade Center in New York City.

Open banking has been slow to come to the U.S.

Photo: Erol Ahmed/Unsplash

As open banking sweeps the world, countries from the U.K. to Australia to Chile to Nigeria are adopting the concept, which generally includes mandates for API access to bank infrastructure and consumer rights to banking data. There's global momentum behind it, but in the U.S. rule-making is still at an early stage. Reforms to Section 1033 of the Dodd-Frank Act, the law that governs consumer access to financial data, are seemingly years away as the Consumer Financial Protection Bureau weighs public comments.

If you want to talk about open access to banking data, you'd be hard-pressed to find a better expert than Chris Dean. He was CTO at startup Standard Treasury, which sold to Silicon Valley Bank, after which he headed API technology at the bank. He then started Treasury Prime to help connect banks with fintech companies.

Banking-as-a-service companies, which provide software and services for fintechs and banks alike, are growing quickly along with the larger fintech industry. Open banking could turbocharge the sector. There are considerable commercial pressures at work: Fintech companies want to quickly connect with chartered banks to do business and banks want to add new business while staying compliant with strict banking laws. Companies like Treasury Prime and many others are working on the tough challenges involved, which range from managing complex compliance rules to integrating new fintech technology with legacy banking infrastructure.

We caught up with Dean to talk about the challenges of the CFPB's rule-making on financial data; "true lender" rules, another crucial area of regulation; and how banks and fintechs can work together.

This interview has been edited for brevity and clarity.


Treasury Prime's Chris Dean. Treasury Prime's Chris Dean.Photo: Treasury Prime

What do you see happening with the CFPB's rule-making on Dodd-Frank's Section 1033? Why is this financial data rule important?

Boy, I want this to happen. I really really want this to happen. I have no faith that this is gonna happen. The largest banks — the top five to 10 banks — they have to be the ones who say it's OK because that's where the majority of accounts are. Until they give the thumbs-up that they really want to do this, I do not have a lot of faith here. I'm hopeful. I want this to happen, but I'm not hopeful. If [something like] PSD 2 [the European open-banking regulations] ... were to happen in the U.S., that would take us five or 10 years to actually implement it.

Why would it take so long?

Because of the nature of the banking structure in the U.S. One is that, there's about 10,000 (banking) institutions in the U.S. So that's 10,000 things that would have to change. Although the majority of the money is at Wells Fargo, JPMorgan, etc., there's still a lot of money in the long tail — trillions of dollars. That means you have to get 10,000 mom-and-pop banks and credit unions to add the technology to do this. This is not an easy problem.

Additionally, to make this work, our regulatory landscape is really fractured. There's the OCC, FDIC, state regulators. These are all different entities. And the bank charter comes from those entities. So who's going to enforce and mandate this? The obvious person is the FDIC because everyone wants to have their accounts FDIC-insured. But that doesn't mean every bank is FDIC-chartered. So that's why: too many regulators and too many financial institutions.

Fintechs say being able to easily access your data from a bank would make it better for consumers. Is that true?

It's a great idea. I love that too; it would make banking better. It's hard. I think really, if anyone was gonna do this properly it would be Early Warning. Early Warning has integrations with the bigger banks directly. [Note: The bank-owned company is also the provider of the Zelle money-transfer system.]

It's probably more likely that the people who should be implementing this, who would actually implement this, are FIS, Fiserv, Jack Henry. They're the actual people who are running the software for a bank.

What's your take on the "true lender" rule being changed? This is the regulation that lets fintechs pick a bank to partner with on loans and rely on that bank's home-state rules for interest rates that Congress recently moved to overturn.

I was surprised by the OCC rule change. What I'm less surprised by is that Congress got pissed off, because the whole point of "true lenders" is to make sure everyone's treated well and the fact that they're like, "Oh yeah, you could charge crazy interest rates," it's like, "No, no, that's what we're trying to stop."

It's hard to predict the future, and I am not good at predicting what politicians will do. But my expectation is this will all just roll back to what it used to be.

And Treasury Prime mostly deals with banks, and we have a lot of fintechs, too, but we're a close partner with a lot of banks. For some of them, this is a huge percentage of their business, where it's just too onerous for a fintech to ... go to all 50 states and D.C. and maybe Puerto Rico and follow the lending laws there. It's way easier to deal with a bank and say, "You've already done all that work that's pretty easy for you. Why don't you hold the loan and be the 'true lender' on it, and we'll buy it after a couple or three days?"

How much of a business is that?

It's a real business for the banks. There are about 4,500 commercially chartered banks in the U.S. Is this a legit business line for the banks? It 100% is. If you look at some of the numbers from some of the more popular fintech banks and how they've grown, yeah, it's a huge percentage of the fintech business. If you look at Cross River's numbers, a lot of that is Affirm, right?

The thing that we essentially do is we take a bank and we turn them into a fintech bank. Once the fintech bank exists, we can pull fintechs to them.

How do you help connect banks and fintechs?

Traditionally, there are two different cultures. A fintech generally doesn't know how banking works and a bank generally doesn't know how a startup technology company works. They work at different speeds. They have different needs. So what we do is we provide a technology solution to connect these two different worlds together. For the bank we make sure that their governance models are adhered to, because they have things they want to do and are willing to do and things they're not willing to do. And we make sure that our software enforces that. They have control of that.

For fintechs we make sure that it's really, really easy to get started. Our goal here is to make it as easy as to get started with AWS.

Is governance and compliance the main issue?

That's why Treasury Prime works. We came out of Silicon Valley Bank, but we did it inside of a bank first. Since we saw what the bank needed, we realized that the only way for these fintechs to be successful at scale is that the bank was really a true partner of theirs. And the bank had rules they have to follow.

I can't tell you the number of regulatory queries we've had to go through. With our technology, you can just say, "Here's every step we ever did on every one of my accounts right from when we opened it from scratch." And for the regulator, they're like, "That's great. We just want to make sure you're following the rules as we set out."

California recently said Chime couldn't use the word "bank." What are your thoughts on that?

In every contract I've ever seen between a fintech and a bank, there's a clause that says the bank has to approve the marketing. And this is part of it: Your name is part of your marketing.

None of our banks will allow anyone to call themself a bank, even if they spell it funny with a "c" instead of a "k."

And Chime can't say they're a bank, unless they're in fact a bank, which they indeed are not. They're a great company. I love the product.

Is there an example of a smaller bank that's doing well with innovation?

It's the banks who have the leadership, who are really forward-thinking. So, basically, what usually happens is the banks that pick their lane, their markets. One example is Provident. It's one of the oldest banks in the U.S. and they're doing the crypto stuff. It's all about the leadership who really understands where the puck is going and how the financial markets are changing and want to be part of that.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

The way we work has fundamentally changed. COVID-19 upended business dealings and office work processes, putting into hyperdrive a move towards digital collaboration platforms that allow teams to streamline processes and communicate from anywhere. According to the International Data Corporation, the revenue for worldwide collaboration applications increased 32.9 percent from 2019 to 2020, reaching $22.6 billion; it's expected to become a $50.7 billion industry by 2025.

"While consumers and early adopter businesses had widely embraced collaborative applications prior to the pandemic, the market saw five years' worth of new users in the first six months of 2020," said Wayne Kurtzman, research director of social and collaboration at IDC. "This has cemented collaboration, at least to some extent, for every business, large and small."

Keep Reading Show less
Kate Silver

Kate Silver is an award-winning reporter and editor with 15-plus years of journalism experience. Based in Chicago, she specializes in feature and business reporting. Kate's reporting has appeared in the Washington Post, The Chicago Tribune, The Atlantic's CityLab, Atlas Obscura, The Telegraph and many other outlets.

Protocol | Workplace

How to make remote work work

Hofy made an early bet that COVID-19 would have a long-term impact on workplaces. The company recently raised $15.2 million for its remote workforce equipment management solution.

Hofy recently raised $15.2 million for its remote workforce equipment management service.

Photo: Jannis Brandt/Unsplash

It's your new employee's first day of remote work, but their laptop hasn't shown up yet. Not a good look.

This very 2021 persistent problem is part of why Hofy, a remote workplace management tool, recently raised $15.2 million to help companies deploy laptops, chairs, desks and other physical equipment to their remote employees. The idea for Hofy, which is launching out of stealth today, emerged in the early days of the COVID-19 pandemic — before lockdowns went into effect in the U.S. and the U.K. Hofy's co-founders, Sami Bouremoum and Michael Ginzo, had a feeling that COVID-19 would have a long-term effect on society.

Keep Reading Show less
Megan Rose Dickey

Megan Rose Dickey is a senior reporter at Protocol covering labor and diversity in tech. Prior to joining Protocol, she was a senior reporter at TechCrunch and a reporter at Business Insider.

Protocol | Policy

Tech giants want to hire Afghan refugees. The system’s in the way.

Amazon, Facebook and Uber have all committed to hiring and training Afghan evacuees. But executing on that promise is another story.

"They're authorized to work, but their authorization has an expiration date."

Photo: Andrew Caballero-Reynolds/AFP via Getty Images

Late last month, Amazon, Facebook and Uber joined dozens of other companies in publicly committing to hire and train some of the 95,000 Afghan refugees who are expected to be resettled in the United States over the next year, about half of whom are already here.

But nearly two months since U.S. evacuations from Kabul ended and one month since the companies' public commitments, efforts to follow through with those promised jobs remain stalled. That, experts say, is partly to do with the fact that the vast majority of Afghan arrivals are still being held at military bases, partly to do with their legal classification and partly to do with a refugee resettlement system that was systematically dismantled by the Trump administration.

Keep Reading Show less
Issie Lapowsky

Issie Lapowsky ( @issielapowsky) is Protocol's chief correspondent, covering the intersection of technology, politics, and national affairs. She also oversees Protocol's fellowship program. Previously, she was a senior writer at Wired, where she covered the 2016 election and the Facebook beat in its aftermath. Prior to that, Issie worked as a staff writer for Inc. magazine, writing about small business and entrepreneurship. She has also worked as an on-air contributor for CBS News and taught a graduate-level course at New York University's Center for Publishing on how tech giants have affected publishing.

Protocol | Fintech

How European fintech startup N26 is preparing for U.S. regulations

"There's a lot more scrutiny being placed on fintech. We are definitely mindful of it."

In an interview with Protocol, Stephanie Balint, N26's U.S. general manager, discussed the company's approach to regulations in the U.S.

Photo: N26

N26's monster $900 million funding round announced Monday underlined the German startup's momentum in the digital banking market.

Stephanie Balint, N26's U.S. general manager, said the funding will be used for expansion and also to improve "our core offering to make this the most reliable bank that our customers can trust," she told Protocol.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

Latest Stories