Revisiting Fintech Protectionism

Dealbook chimes in on the fight over data between the companies that collect and curate the data (banks) and the companies that want to use that data to sell stuff (including that data).

As I pointed out last time, this is a commercial dispute masquerading as a regulatory one. If that wasn’t already clear, Dealbook lays it all out on the line:

Technology start-ups like Mint and Betterment have been building services that pull together your bank account and credit card records — after you supply the passwords.

But now big banks are making a concerted push to set new restrictions on how technology companies can get access to this personal financial data, in some cases refusing to pass along information like the fees and interest rates they charge.

The banks say that they can’t just give out data because giving out data wily-nily is pretty risky:

Banks like JPMorgan Chase and Wells Fargo say they want to give consumers access to their data, but are seeking new rules in response to a lack of standards for how technology companies handle personal financial data.

“When you think about millions of customers handing over their bank account credentials to third parties, who currently have no real oversight or examination of their security controls, you start to understand why our members get pretty nervous,” said Jason Kratovil, the vice president for government affairs for payments at the Financial Services Roundtable, which represents the largest banks.

The tech companies, however, say this is all about business:

The tech companies, in turn, complain that the steps being taken by banks will not lead to better security and are motivated, instead, by a fear that the data will allow the financial upstarts to offer better deals on loans and checking accounts.

William Harris, the founder of Personal Capital, a San Francisco-based start-up, said the problems with getting access to data from banks had grown worse over the last year. To him, it was a sign that the banks viewed open access to data as a threat to their business, given that it would allow customers to see how much they pay for financial products.

“It’s pretty clear the real intent of the banks is to limit this data because it puts their business model at risk,” he said.

Indeed. The “banks view[] open access to data as a threat to their business.” And since we don’t like banks, we’re supposed to cheer for open data, right?  Dastardly banks, trying to limit risks to their business models. But what Mr. Harris is really saying is that “start ups view the lack of open access to data as a threat to their business.” So start-ups are also trying to protect their business models? That’s so confusing. Whose side should I be on?

I would put it this way, however: banks think it’s a bad business decision to give away valuable stuff that they collect and store for free. Start-ups like free stuff that they can turn around and sell.

Both points of view are understandable, but as a general rule, it’s hard to justify robbing Peter to pay Paul. As much as I like start ups, I don’t think they need or deserve a subsidy.

Here’s the real kicker — data is really, really, really valuable:

The clash over personal financial data points to a broader recognition that personal digital records are among the most valuable currencies in the increasingly digital economy.

Dealbook describes some of the ways that data is used to make financial products, but that’s only the tip of the iceberg. Data is valuable in and of itself — data vendors clean the stuff up and hawk it to hedge funds, insurance companies, banks, etc. and let them figure out what to do with it. You don’t even have to build a beautiful product with data — you just need data.

It’s making more and more sense to force the banks to give this stuff away for free, right?

Dealbook actually puts the commercial dispute front and center, and only then turns to the regulatory angle:

The European authorities have largely decided that consumers, not companies, own the digital records associated with their accounts. As a result, European banks are generally being forced to make it easy for their customers to share their financial data with whomever they choose.

That’s an unfortunate and misleading choice of words. If consumers “owned” their digital records then they would be able to sell them, including to the very banks that create and store them. That’s obviously not the case, since the very next sentence tells us that banks are “generally forced to make it easy . . . to share their financial data.”

It’s more accurate to say that “European authorities have largely decided that European authorities, not companies or consumers, own the digital records associated with customer accounts.”

Not surprisingly, Rob Cordray, lame duck director of the People’s Consumer Liberation Army Consumer Finance Protection Bureau, agrees that he too should own personal financial data, just like European Authorities:

“We recognize that data access makes it possible to realize the many benefits of competition and innovation,” Mr. Cordray said in a speech this month in New York. “We remain concerned about reports of some institutions that may be limiting or restricting access unduly.”

Fortunately, the banks have eschewed expropriation and are pursuing more peaceful ways to resolve questions of ownership, like contracts:

Banks, in the meantime, have taken the initiative by pushing technology companies to accept new agreements on how they use the data they pull from the banks. . .

JPMorgan is hoping to create a dashboard on its website where customers can choose to turn on or off the data flowing from the bank to any outside provider . . .

In January, both JPMorgan and Wells Fargo signed agreements with Intuit — the owner of Mint, TurboTax and QuickBooks — that will give Intuit more streamlined access to data from the banks, in exchange for new rules about how Intuit uses the data.

That dashboard sounds pretty cool, actually.

But, of course, deal making goes in fits and starts, because again, this data is really valuable. Startups have been getting this stuff for free and making piles of money off it, but now banks want to get paid too. I mean, it’s all for the consumers, naturally, but everyone has to keep the lights on, right?

In recent negotiations, including those with Intuit, Wells Fargo has asked to be paid by technology companies that want better access to its data, a sticking point for technology companies that believe data should flow freely.

Mr. Pitts said the payments were intended to help the bank cover the additional infrastructure costs involved in providing real-time access to data.

The negotiations with Yodlee are particularly important because it is the largest so-called data aggregator. Yodlee and a few other data aggregators serve as the middlemen between the banks and the start-ups, pulling the data from the banks and putting it into a form that start-ups like Betterment and Digit can use.

Yodlee is the biggest aggregator, but it has also been the most controversial because of what it does with the data it collects.

In particular, the company has been criticized for taking the billions of credit card transactions running through its pipes and selling them to hedge funds and other investment firms. Investors want to look through the transactions for trading signals, such as any indication that a particular retailer or product is doing better than expected.

The data is digital gold. The banks know it. The startups know it. Even the regulators know it (which is why they want it too).

If you genuinely want the consumers to win, then let the bidding proceed apace and keep the grasping hand of blowhards with no skin in the game regulators out of it.


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