JPMorgan spooks fintechs with plans to charge for access to customer data – Financial Times

Report on JPMorgan Chase’s Data Access Fee Proposal and its Implications for Sustainable Development Goals

Executive Summary

JPMorgan Chase (JPM) has announced a plan to levy fees on financial technology (fintech) companies for accessing its customer data. This policy shift threatens the business models of numerous startups and data aggregators, such as Plaid, which have historically relied on free data access. The move has significant implications for several United Nations Sustainable Development Goals (SDGs), particularly those related to economic growth, innovation, and inequality. This report analyzes the proposed policy and its potential impact on the achievement of these global goals.

Analysis of the Proposed Data Access Fee Structure

JPM, the largest US bank by assets, intends to implement a fee structure for third-party access to its customer data via Application Programming Interfaces (APIs). The bank’s rationale is based on several key points:

• Investment Recovery: The bank has invested significantly in building and maintaining the secure API infrastructure that fintechs utilize.
• System Efficiency: JPM reports that approximately 90% of the 2 billion monthly API requests it receives are not directly related to a customer-initiated action, and a fee structure would encourage more efficient data usage.
• Ecosystem Security: The bank argues that charging will ensure data middlemen contribute to the safe and secure data ecosystem that JPM built and maintains.

This policy is supported by other financial institutions, including PNC Bank, and is enabled by a reversal of a Consumer Financial Protection Bureau (CFPB) rule that would have prohibited such charges.

Implications for SDG 8: Decent Work and Economic Growth

The proposed fees directly challenge the objectives of SDG 8, which promotes inclusive and sustainable economic growth, employment, and decent work for all.

1. Threat to Small and Medium-Sized Enterprises (SMEs): Fintech startups, which are often SMEs, face existential threats. The Financial Data and Technology Association reports that the proposed fees from JPM alone could represent between 60% and over 100% of some firms’ annual revenue.
2. Stifling Competition: The policy is viewed by critics as an anti-competitive measure designed to eliminate nascent competitors. This consolidation of market power in large banks runs counter to the goal of fostering a dynamic and diverse economic environment.
3. Job Market Impact: The potential failure of numerous fintech companies could lead to significant job losses and a contraction of economic growth within this innovative sector.

Implications for SDG 9: Industry, Innovation, and Infrastructure

SDG 9 aims to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation. JPM’s action could undermine progress in this area.

• Barrier to Innovation: Free data sharing has been a catalyst for a decade of financial innovation. Imposing steep fees creates a significant barrier, potentially halting the development of new financial services and technologies.
• Undermining Digital Infrastructure: While JPM argues it is funding the infrastructure, critics contend that making this essential digital infrastructure prohibitively expensive undermines its utility and accessibility, which are core tenets of SDG 9.
• Contradiction with Global Practices: The move would make the US an outlier compared to jurisdictions like the UK, Brazil, and Sweden, where open banking frameworks mandate largely free data access to encourage innovation.

Implications for SDG 10: Reduced Inequalities

The policy could exacerbate financial inequalities, conflicting with the aims of SDG 10.

• Increased Consumer Costs: Fintech firms that survive the fees will likely be forced to pass these costs on to consumers, making innovative financial tools more expensive.
• Reduced Financial Inclusion: Fintech services often provide accessible and lower-cost financial management tools to underserved populations. Hindering these services could reduce financial access and choice, widening the gap between those with and without access to modern financial tools.
• Impact on Emerging Technologies: The crypto industry, which relies on open banking to connect wallets with traditional bank accounts, would also be adversely affected, potentially limiting access to alternative financial systems.

Implications for SDG 16 & SDG 17: Institutional Integrity and Partnerships

The dispute highlights challenges related to strong institutions (SDG 16) and partnerships (SDG 17).

1. Regulatory Uncertainty (SDG 16): The conflict stems from a period of regulatory ambiguity following the reversal of a CFPB rule. The call from fintech associations for courts to uphold the original rule underscores the need for clear, stable, and fair regulatory frameworks to govern markets and protect competition.
2. Breakdown of Partnerships (SDG 17): The interconnected financial ecosystem relies on collaboration between traditional banks and technology companies. JPM’s unilateral move is seen as a departure from a partnership model toward a purely competitive one, which could damage the collaborative progress that has defined the digital finance sector.

1. Which SDGs are addressed or connected to the issues highlighted in the article?

SDG 8: Decent Work and Economic Growth

The article touches upon economic growth by focusing on the viability of financial technology (fintech) start-ups. The proposed fees by JPMorgan Chase threaten the business models of these smaller companies, potentially stifling economic dynamism and entrepreneurship within the financial sector. The article notes that the action is seen as an attempt to “kill competition” and could “put third parties out of business altogether.”

SDG 9: Industry, Innovation, and Infrastructure

This goal is central to the article, which revolves around innovation in the financial industry and the digital infrastructure that enables it. The conflict is about access to Application Programming Interfaces (APIs), which are a form of digital infrastructure that JPMorgan has spent millions to build. The bank’s decision to charge for access could hinder technological innovation by making it financially unfeasible for start-ups to develop and offer new services.

SDG 10: Reduced Inequalities

The issue highlights the inequality in market power between a large, established institution like JPMorgan Chase and smaller fintech competitors. The bank’s move is described by critics as an effort to “crush competition” and “consolidate their position in the market,” which would increase inequality between large corporations and small-scale enterprises. Furthermore, the potential for these costs to be passed down to consumers could also create or worsen inequalities among the public.

SDG 16: Peace, Justice, and Strong Institutions

The role of regulatory bodies and legal frameworks is a key theme. The article explicitly mentions that the situation arose after a rule by the Consumer Financial Protection Bureau (CFPB) was changed following the “gutting of the regulator.” The fintech industry’s appeal to the courts and political figures to uphold the original rule underscores the importance of effective, accountable, and transparent institutions in ensuring a fair market.

SDG 17: Partnerships for the Goals

The article describes the “interconnected nature of banks and non-bank companies” in providing financial services. This data-sharing ecosystem is a form of multi-stakeholder partnership. The dispute over fees represents a significant challenge to this partnership model. The comparison to other countries like the UK, Brazil, and Sweden, where open banking is mandated to be largely free, highlights different approaches to fostering public-private partnerships for financial innovation.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. SDG 8: Decent Work and Economic Growth

   • Target 8.3: Promote development-oriented policies that support productive activities, decent job creation, entrepreneurship, creativity and innovation, and encourage the formalization and growth of micro-, small- and medium-sized enterprises. The article directly addresses this by detailing how JPMorgan’s proposed fees threaten the existence and growth of small and medium-sized fintech enterprises, which are hubs of innovation and entrepreneurship.

2. SDG 9: Industry, Innovation, and Infrastructure

   • Target 9.3: Increase the access of small-scale industrial and other enterprises…to financial services…and their integration into value chains and markets. The core of the article is about the access of small fintech enterprises to the data infrastructure (APIs) needed to integrate into the financial services market. The proposed fees are a direct barrier to this access.
   • Target 9.c: Significantly increase access to information and communications technology and strive to provide universal and affordable access to the Internet. While not about the internet itself, the principle of affordable access to critical digital infrastructure (data APIs) is central. The debate is over whether this access should be free, as it is in other jurisdictions, or if high fees can be charged, making it unaffordable for some.

3. SDG 10: Reduced Inequalities

   • Target 10.3: Ensure equal opportunity and reduce inequalities of outcome, including by eliminating discriminatory…policies and practices. The fintech industry argues that the lack of a protective rule allows a dominant market player to create a practice that disadvantages smaller competitors, thereby reducing equal opportunity in the financial services market.

4. SDG 16: Peace, Justice, and Strong Institutions

   • Target 16.6: Develop effective, accountable and transparent institutions at all levels. The article points to the weakening of a key institution, the Consumer Financial Protection Bureau (CFPB), and the reversal of its rules as the direct cause of the current “moment of regulatory uncertainty,” highlighting a failure to maintain an effective regulatory institution.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. For Target 8.3 (Support for SMEs):

   • Indicator: Cost of data access as a percentage of annual revenue for small enterprises. The article provides a direct measure, stating that for some fintechs, the cost of Chase’s data alone is “from 60 per cent and in some cases well over 100 per cent of their annual revenue.” This is a clear indicator of financial unsustainability.

2. For Target 9.3/9.c (Access to technology/infrastructure):

   • Indicator: The price structure for data access. The article mentions that JPMorgan “sent out price sheets” and that the bank has “reserved the right to charge a fee.” The existence and level of these fees are a direct indicator of the affordability and accessibility of this digital infrastructure.
   • Indicator: Volume of API requests. The article states JPMorgan receives “2bn monthly API requests,” which can be used as a baseline to measure how fee implementation might affect the use of these innovative services.

3. For Target 10.3 (Equal opportunity):

   • Indicator: Comparison of national open banking policies. The article implies this indicator by noting that the US would become an “outlier” and “completely the opposite of every other country with open banking” like the UK, Brazil, and Sweden, where access is “mandated to be largely free.” This comparison measures the policy environment for market fairness.

4. For Target 16.6 (Effective institutions):

   • Indicator: Existence and enforcement of consumer financial protection regulations. The article points to the “gutting of the regulator” and the CFPB’s “revoked rule” as a measurable event that indicates a weakening of institutional effectiveness and oversight.

4. Table of SDGs, Targets, and Indicators

Source: ft.com