Can JP Morgan get US fintech to jump on the API bandwagon?

The bank spends US$11 billion on technology annually. It has the incentive as well as the power to drive API adoption among fintechs.
19 February 2020

J.P. Morgan offices in Canary Wharf in London. Source: Shutterstock

Most fintech companies ordinarily need access to data from a customer’s banking and financial institution in order to perform even the most basic task.

In many cases, they gain this access by asking the customer to share their passwords and using a process known as ‘scraping’. Although the method sounds harmless, it renders customers and their data vulnerable to attacks in cyberspace.

JP Morgan Chase, therefore, is inclined to interrupt such access to data. Instead, it is keen on getting US fintech companies to transition to a more secure method built on application programming interface (API) technology.

Reuters confirmed that the bank not only sent a letter to this effect and set a July deadline but also found that — surprisingly — agreements with those making 95 percent of data access requests had already been reached.

The move isn’t designed to block out US fintech companies and create room for the bank to roll out its own digital products and services. That’s not an idea the bank’s management relishes.

It recently shuttered Finn, a play it made in the digital-only banking space to attract millennials and to attract customers it couldn’t physically reach.

JP Morgan Chase’s decision to onboard US fintech companies onto an API-powered platform, instead, is an effort to help provide customers with more control and visibility when dealing with fintech companies.

US regulators aren’t keen on open banking — but the market needs it

Open banking is a global trend that puts customers in control of their financial data, allowing them to direct banks to share it with fintech companies. Usually using API technology.

It’s something that Europe and Asia have embraced but the US has stayed away from.

In a recent report to US President Donald Trump, the US Treasury Department proposed to take a ‘wait and watch’ approach. It outlined the rollout of open banking in the United Kingdom and said that:

“There are significant differences between the US and the UK with respect to the size, nature, and diversity of the financial services sector and regulatory mandates.

“Given those differences, an equivalent open banking regime for the US market is not readily applicable. Nonetheless, as open banking matures in the UK, US financial regulators should observe developments and learn from the British experience.”

This isn’t to say that the regulators in the US aren’t focused on innovation. Per President Trump’s mandate, there’s an increasingly strong focus on enabling the use of artificial intelligence (AI) and other cutting-edge technologies across industries, including financial services.

Open banking, unfortunately, isn’t a focus, and judging by the recommendations in the report, it won’t be a priority anytime soon.

JP Morgan’s directive, however, gives the notion that the bank is using its size, stature, and influence in the US market to get fintech companies to warm up to accessing data using secure API technology. A step forward, towards open banking in the US.

If a majority of fintech companies make adjustments based on JP Morgan’s directive with regards to access to customer data via APIs, it could set a trend in the market and allow other banks to follow suit as well, fostering an ecosystem of safer, more transparent access to financial data in the US.

JP Morgan invests US$11 billion in technology every year. If it manages to drive this one change in the US market, that investment will be making a very prominent impact in the eyes of the public.