HOST: J.P. Nichols
GUESTS: Phil Goldfeder (American FinTech Council), Penny Lee (Financial Technology Association)

What Is Section 1033 and Why Is It Creating Industry Tension?

HOST: Let’s start with the core of today’s discussion. Section 1033 of the Dodd-Frank Act has become the epicenter of the open banking battle. Finalized in October 2024 by the CFPB, the rule confirms consumers’ rights to permission their financial data. But almost immediately, large banks challenged it legally.

PENNY LEE: Within hours of finalization, the Large Bank Trade Association sued in Kentucky. After a series of legal stays, the rule is now in effect as of May 2025. Despite its imperfections, we believe it’s essential to safeguard consumer choice.

PHIL GOLDFEDER: Ironically, both Penny and I support a rule issued by Director Chopra. At its heart, this is about consumer data access and ensuring innovation isn’t stifled by legacy institutions.

Why Are Big Banks Pushing Back?

HOST: Why would banks resist this rule?

PHIL: They argue they’re investing in infrastructure and fraud prevention, so they deserve compensation. But the reality? Consumers already pay for these services via account fees and overdrafts. Charging again for data access is like double taxation.

PENNY: Plus, FinTech aggregators have also built sophisticated infrastructure. They clean and format messy bank data to deliver meaningful financial tools.

QUOTE: “This is essentially a double dip on the consumer who’s already paying for banking services.” — Phil Goldfeder

What Changed at JPMorgan Chase?

HOST: JPMorgan Chase, once an API leader, suddenly introduced sky-high fees for data access. Why the about-face?

PENNY: They’re capitalizing on regulatory ambiguity. Their new fees are exorbitant and attempt to reclaim losses from poor internal investments. It’s a strategic shift but anti-consumer.

PHIL: They’re asking FinTechs to subsidize their legacy mistakes. Meanwhile, consumers are shifting to Robinhood, Acorns, and neobanks. Chase should compete for that loyalty, not stifle access.

QUOTE: “Chase is losing the battle for the next generation consumer… and they know it.” — Phil Goldfeder

What Are the Real Security Concerns?

HOST: Banks claim data access increases fraud risk. Is that valid?

PENNY: It is a concern, but this rule actually strengthens fraud prevention. It mandates guardrails and encourages secure APIs over risky screen scraping.

PHIL: Every responsible innovator cares about security. FinTech is not the Wild West anymore. Many firms are regulated and forward-thinking.

QUOTE: “We’re not anti-regulation. We’re asking for clarity so we can innovate responsibly.” — Phil Goldfeder

Are All Banks Aligned Against Open Banking?

HOST: Is this resistance universal among banks?

PHIL & PENNY: Not at all. Many community and regional banks embrace open banking. They see collaboration with FinTechs as a growth opportunity.

PHIL: 25% of AFC’s members are community banks innovating through partnerships. They recognize evolution is essential.

PENNY: Even some large banks are partnering with FinTechs quietly. The ecosystem isn’t monolithic.

Could This Hurt Small Businesses Too?

HOST: How does this affect businesses?

PENNY: Small and mid-sized businesses rely on consumer data for cash flow underwriting and tailored financial services. If access is blocked, they lose.

PHIL: Without this rule, we regress. Businesses and consumers will revert to insecure, outdated data-sharing methods.

QUOTE: “Without data portability, small businesses lose the ability to compete. That’s bad for everyone.” — Penny Lee

What Can We Learn from International Models?

HOST: Europe adopted open banking years ago. Any lessons?

PENNY: Europe, Singapore, India, they’re ahead. Payments are faster, safer, and more transparent. The U.S. must not get left behind.

PHIL: We’ve been debating this for 14 years. Let’s start somewhere. The current rule isn’t perfect, but it’s a foundation.

So, Is Open Banking Dying or Growing Up?

HOST: Final thoughts: is open banking on its way out?

PHIL: It’s maturing. Resistance is part of innovation. But FinTechs and consumers will push it forward.

PENNY: Consumers won’t let it die. They’ve seen the benefits. They’ll demand choice and access.

QUOTE: “Innovation doesn’t stop. Open banking isn’t dying. It’s just growing up.” — Penny Lee

RAW TRANSCRIPT:

[Phil Goldfeder]

I’ve talked to probably about five or six in the last month of some of the largest regional banks about sort of their strategies and how they’re implementing embedded finance and innovation. And I, again, sort of goes back to what I said earlier, it’s sort of biggest banks are not immune to that shift. I am always encouraged when we have those conversations, whether they join us or not, right?

We’re always encouraged to have those conversations because inevitably there’s a recognition that evolution is happening. And so you always do better when you build those collaborations, when you build the shared mistakes, so you can make sure the future is better for everyone.

[JP Nichols]

Well, I am J.P. Nichols and with me today are two leaders at the heart of the U.S. banking, open banking battle, Phil Goldfeder of the American FinTech Council or AFC and Penny Lee of the Financial Technology Association or FTA. Over the past few months, they have both taken public stances on Section 1033, better known as the CFPB’s open banking rule. Phil, in general, supporting it as foundation for innovation and nuanced guardrails and Penny, defending rightful consumer control and choice.

At the same time, big banks are pushing back, probably unsurprisingly, introducing fees and regulatory uncertainty. On Friday, Bloomberg confirmed J.P. Morgan Chase’s intent to charge for access to this personal data, charge to the FinTech aggregators who will certainly pass this on to consumers one way or the other. A frequent contributor of the show, Ron Shovlin, called me out on my LinkedIn post.

I said they’ve already begun charging and well, OK, technically, I guess that’s not true, but they’ve certainly thrown down the gauntlet. And so the question is, is that a reasonable cost of doing business or is it a barrier to the promise of what open banking really could be? Today, we’ll dive into why charging for data access might feel rational for the big players now, but could hurt consumers later as we seek to unpack the legal, security, competitive and regulatory dynamics at play.

Well, let’s start with the rule itself. And Penny, I’ll start with you. Where are we today in mid-July 2025?

Because this has not been a straight line.

[Penny Lee]

Yeah. So it was first introduced, obviously, back when the Dodd-Frank bill was passed 2010-2011. So it’s been quite a bit.

Nearly ancient history. Nearly ancient history. Many administrations have come and gone since that time.

But you saw in October of 2024, October this last year, in which the CFPB did promulgate, did finalize a final rule around this section of the Dodd-Frank Act, which was the Section 1033, which says, confirmed that consumers have the right to permission their data to an individual agent, trustee or representative. And, you know, within hours of this being unveiled at the Philadelphia Fed FinTech Conference, within hours, the Large Bank Trade Association did sue, sued in Kentucky to challenge this rule. So since that time, we have been, you know, this has been tied up in the courts.

We became concerned when, after the election, post-election, and then understanding and hearing that the administration, the Trump administration, will likely be rolling back, withdrawing, not enforcing a lot of different rules that were promulgated or finalized under President Biden, we became concerned if no one was there to defend the rule, then, you know, the banks and others would prevail on certain arguments to the harm of FinTech and innovation. So we filed a motion to intervene roughly, you know, right in February.

We filed the motion to intervene. Prior to that, there was two stays to this legislation, and they actually, the compliance deadlines got pulled by about 90 days. So the rule doesn’t go into effect, aspects of the rule don’t go into effect until, you know, right around August of 2026.

But yet, this is, now that all of the stays post-May 25, all the stays on the rule have been lifted. So this rule, you know, is in effect right now. And that’s kind of where we are.

We have had conversations with the CFPB, you know, and others, and there was always, you know, right after the administration took over, there was conversations about reopening. There were things that, you know, we didn’t all agree with that were promulgated or that were finalized in the final rule. Phil and I both had, you know, objections to secondary restrictions on the secondary use of data, restrictions around the type of accounts that could be brought into open banking.

So, you know, we were having productive conversations about potentially reopening this rule and addressing some of the concerns that, you know, both banks and fintechs had in it. I guess they say a perfect rule is that no one is happy. Well, this was a little less than perfect.

We’re a little less than perfect on that. But then in, you know, then there was an about-face by the CFPB, and it was, they did go to court and asked to vacate this rule, and it’s entirely. And to vacate, they said that the definition of who a consumer is was unlawful.

So that’s kind of where we’re at. We have both a legal fight. We also are, you know, working through administration indicating that they might reopen the rule as well, but obviously the litigation will dictate so much of what they can and cannot open.

[JP Nichols]

Yeah. Well, Phil, I want to get your take on what’s at stake here, right, whether the rule is enforced or not. But before you do that, you just drilled down on Penny’s point.

The CFPB really completely reversed themselves, right, did a 180 and testified, I think that’s maybe not the right word, but provided testimony to kind of vacate their own rule, right?

[Phil Goldfeder]

It’s fascinating. And anybody who doesn’t see the irony of both Penny and I defending a rule promulgated by Director Chopra is just sort of, the comedy has got to be lost on those folks who don’t realize sort of what’s happening here. I remember sitting on the stage in April of 23, at that point, it was FinTech Nexus in New York City with Director Chopra talking about exactly this, right, finding ways to create competition, which ultimately led to the rulemaking.

And I think huge kudos to Penny and to the Financial Technology Association for kind of leading the lawsuit. Again, it’s sort of as big as I think we’ve both gotten, we also recognize kind of who we’re up against, right? It’s not just the size, but entrenched incumbents who have been doing this for hundreds of years, right?

And sort of Penny and I kind of knew on the block trying to enable what we think is ultimately at stake here is really the consumer access to the data that belongs to them. And so let’s, it’s funny, and JP, you know, we talked about some of the comments we’ve seen on LinkedIn and social media over the last couple of days. I think so much of this, the consumer is getting lost in the argument and the debate.

And to me, that is tantamount to everything that we’re doing and the reason why Penny and I fight for our members, mostly because of the consumers that they serve. Millions of consumers across the country who are served today by responsible, innovative fintech companies who stepped up when traditional institutions weren’t serving them anymore. Whether it was after the recession, where you saw the amount of de-risking and the online lenders stepped in to fill that void, to what you see today in whether they call themselves neobanks or buy now pay later, or so many different verticals that are serving consumers in a way that none of the traditional banks are able to.

And I look at sometimes, I go back to two or three or four years ago when the biggest banks in the country that laughed at some of the new products that were coming out and said, there’s no way those products, whether it’s earned wage access or buy now pay later, those products will never eat into our margins and we don’t have to worry about it. Only now for them to try fumbling into that ecosystem, right? We’ve seen it time and time again, sadly they failed.

And in the absence of the biggest banks building those systems, they’re now looking for other ways to monetize and entrench themselves into their stronghold. And so what’s at stake? It’s really the consumer’s ability to access safe, fair financial products.

[JP Nichols]

Yeah, and I want to stay centered on that in our conversation today, but in order to do that, I think we do have to look at both sides. And what you described is the classic innovator’s dilemma, the insurgents versus the incumbents. And so at the end of the day, a lot of this is going to come down to incentives, right?

Who benefits in what ways? And so, you know, let’s take, you know, this may hurt, but let’s take the bank’s point of view for just a minute. Why are they, but we can say, yeah, they’re big, they’re greedy and they just want everything, but what makes at least a little bit of sense from their position?

[Phil Goldfeder]

The argument I’ve seen is that, you know, they’re paying for the regulatory oversight, they’re paying to ensure data privacy, they’re paying for key infrastructure, right? If we want to encompass all of it into one bubble or bucket, what I would argue, and there’s on some level that makes a little bit of sense, what I would argue and push back on that very simply is that who’s actually paying for it, right? It’s the consumers who are paying for the products, right?

If I… One way or the other. Correct, right?

If I have a Chase bank account, I’m paying for it in the forms of cost for my checking account, overdraft fees, right? Like there’s so many fees that some of the banks sort of are tacking on to consumers. And so, yeah, the big bank is paying for it, but it’s on the backs of the consumer, right?

The challenge here is what we all talked about earlier, it’s about competition, right? And so, if the bank wants to offer a better product, great, fantastic, right? They should do that and they should fight for that consumer to stay with them.

But if the consumer is going to another product, to a fintech company, there’s inherently a reason for that, right? The consumer is looking for better access in the form that the bank is currently not offering. And so, ultimately, it’s the consumer’s data while I understand sort of the argument in that there is infrastructure from the big bank, they’re already being paid by the consumer.

What I would argue, this is essentially a double taxation, right? Like, you know, sort of a double dip in terms of how can we really take a bite out of the consumer that’s already paying for it.

[JP Nichols]

Phil, throwing the tea into the harbor. Penny, you know, I sort of see this, this is a loose analogy because there are plenty of differences, but you look at what we saw in the utilities, what we’ve seen in the wireless companies, right? As those regulated monopolies kind of devolve to oligopolies with some access and all those arguments that Phil just made apply there.

That analogy doesn’t hold up really well, though, because we’re talking about people’s money, we’re talking about cybersecurity. And I think the biggest challenge is around fraud and who pays for it. I mean, what’s, again, I’ll ask you the painful question, so what’s the bank’s perspective on that?

And then, you know, obviously, what’s yours on behalf of the fintechs?

[Penny Lee]

Yeah, I mean, they would make that argument that they’re paying for all this fraud prevention and they shouldn’t be held liable for the full chain, meaning that when it gets transferred out of the bank, you know, whoever is in possession of that data, then if there is a breach or if there’s some fraud risk into it, then that entity should be held liable for those breaches. And I would say that is something that I think is part of, you know, part of the discussion that we had with the Trump administration to maybe look at that and examine that and take a, you know, maybe and put that back out for comment on that liability factor. But to echo back to what Phil was saying, as far as, you know, the bank’s making the argument for the infrastructure, what is lost in that conversation is the incredible amount of infrastructure that fintech data aggregators and others have also built, has also spent.

And, you know, when you receive your data, oftentimes, it’s very raw, it’s very messy, it’s very, you know, hard to determine. And so, you know, what the fintech companies and data aggregators and others are doing is cleaning that up, making it in a way that is presentable, making it in a way that’s usable, making it in a way in which you can access a financial app to kind of live your better life or to have a better, you know, budgeting savings or investments account or all of the personalization that we’ve seen over the last couple of years in the innovation in that space that takes place. So that argument is also lost, you know, when the banks just say, well, we just need to recoup our money for all the infrastructure we built. And I would say it is, I know it’s supposed to be taken a little bit more on the bank side, but a little hard for me sometimes.

[JP Nichols]

Well, the ironies are all over.

[Penny Lee]

The ironies are everywhere. But, you know, it’s also, it’s interesting, you know, JPMorgan Chase built an API, you know, on their own several years ago, have not been charging for it. And then all of a sudden, there’s an announcement they made with exorbitant fees attached to it, now asking data aggregators and others to pay these incredible, what is reported incredible fees attached to it.

So what changed in the interim? There is regulatory uncertainty, and they’re trying to take advantage of that and impose these fees on it to now say, we just need to recoup what we’re paying, but yet ignore all the infrastructure that the FinTech and other companies have done.

[Phil Goldfeder]

Let me, I’ll put a little bit of a finer point on that is essentially, they’re asking FinTechs to pay for the strategic mistakes they’ve made in their own business model, right? They continue to kind of pour money, you know, sort of down the drain when it comes to their own investments, whether it’s in their sort of branch infrastructure, sort of legacy systems, instead of actually taking advantage and learning from the innovators about how they can best themselves, right? There’s no question that the biggest banks in the country have the advantage, they have the money, while many of my members and Penny’s members started out with nothing, right?

And built themselves up to be those innovators, to create that access. I think Chase is sadly upset today that they’re losing the battle for the consumer, right? And so this is sort of a way for them to make up for the innovation and the poor investments that they made.

And quite frankly, again, their own consumer is the one that’s going to be hurt. And I would argue, and I got this question today and it made me think, so what should consumers do or what can consumers do? They should make it clear that this is not acceptable, right?

I look at my daughter and the way in which she embraces her financial access. My daughter doesn’t know what Chase is, she doesn’t know what a branch looks like, but she has a Robinhood account and she has an Acorns account, right? And she has other accounts, right?

And so that is, Chase should be fighting for my daughter, right? And if by supporting innovative financial institutions, that’s a way to kind of find access to the next generation. And so to me, I think regardless of how this plays out, they’re doing themselves a disservice.

And I think it’s important that consumers of all the biggest banks make it clear that they’ve got to offer the product, be more competitive if they want to survive.

[Penny Lee]

And JP, I would just also echo on that and maybe have Phil kind of expand. It is not all banks. There is a huge number of banks that have embraced open banking, that are excited to have this information to be able to work with fintech companies, to be able to have the insights back from their own customers in a way that is usable to be able to enhance their own products and features.

And so it is, it seems to be isolated with some of the largest banks in the country. But you do have an, it’s not monolithic. And so you do have an incredible amount of innovative banks that are in this ecosystem, embracing it and saying, we want to enhance and we want to ensure that consumers have the democratization.

I know that’s an overused words, but being able to have the services and products in which they need. And so Phil’s membership is, is really on the forefront of those innovative banks embracing this.

[Phil Goldfeder]

Yeah. You could tell Penny and I have done this before, by the way, JP, sorry to cut you off. I mean, 20, we’re the American fintech council.

25% of our membership is made up of community banks who are offering innovative services and partnering with fintech companies, finding ways to collaborate. Again, the big banks should be looking at that model and saying, how do we partner with the aggregators with the end? Meaning it doesn’t mean that, that, that there are not mechanisms in which chase could be a part of this ecosystem and find new models for revenue.

Right. But that, that is going to require them to actually invest in the right ways, collaborate in the right ways and look for ways to offer consumers products that are ultimately better so that consumers choose them over others.

[JP Nichols]

Yeah. You beat me to it, Penny, because I was going to say we’re using some pretty broad brushes here today and there are plenty so far, at least, and there are plenty of exceptions. The other irony along our long list here is that the MXs, the Plads, the Yodleys, the Finicities of the world, many of their largest clients are banks because they have challenges with their own data.

It is easier for many banks. And again, maybe, maybe not the largest of all of them, but most banks, it’s easier for them to have an external party make sense out of those, you know, terabytes of data that they have. They, they know what their customers own, what they owe, what comes in, what goes out, but being able to turn that into relevant insights and usable applications is a challenge.

And the rise of FinTech and FinTech partnerships has really made life better for a whole lot of consumers across the board. And so, yes, it’s not shocking that this is the largest banks who have the power, who have the money, the 800-pound gorilla being the one we just talked about. And it’s rational on their view that they would, you know, try to continue to aggregate and consolidate their power.

[Penny Lee]

Yeah, it is. And it is, and I’m glad you said it is, it feels like right now isolated because there is an incredible amount that have embraced this innovation. And I would say over the last several years, we have been operating in an open banking system.

We were, you know, and so having this codified was kind of saying, here are the rules of the road. Here are some guidelines to ensure that we didn’t have this anti-competitive behavior come into the marketplace in this, you know, a thousand pound gorilla, you know, determined, you know, that what, that they want to add, you know, own the control. They want to own the consumer.

They want to have every part of the journey fit within their own banking model, which, you know, prevents a lot of innovation in this, in the services and access to a lot of different products. And so that’s kind of what the change has been. And that’s why we, both of us have advocated for a strong 1033, a strong open banking rule.

But, you know, in the irony, as we talk about all of the ironies is, I know one of the, one of the things that they keep saying is that, you know, we want to make sure, one of the reasons we were opposed is it’s going to prevent a lot of fraud into the rails and it’s going to, into the system. But in fact, this rule in its final form did more to protect the consumer, did more to prevent fraud, did more to, you know, enhance some of the tools and capabilities that are in place. We actually argued that the restrictions on secondary use actually prevented some of the fraud prevention tools to be, to be taking place.

And that’s what we wanted to see reopened. But, you know, these, this was actually allowing for that, again, that codification to allow for more fraud prevention to occur. Without it, you will likely get into an AI-assisted screen scraping that I don’t think is healthy for the industry as well.

[Phil Goldfeder]

Yeah, I would, I would agree. I mean, we’re only going to take a step backwards and go back to older tools. I think what’s critical about, about our membership, it’s not just FinTech for FinTech sakes or the Wild West.

I think that is a sort of a misconception that sometimes for whatever reason, whatever purpose, some people spread that idea that like, well, if it’s FinTech, it’s somehow unreliable, unsafe, unregulated. I think the way Penny and I think about our membership and what we think about FinTech in general, it’s responsible innovators, right? Those who recognize the risk, right?

And I, you know, again, I don’t want to point to any one, but I think every one of our members looks at the risk. They look at the challenges the banks are facing. And I, you give credit to the aggregators who leaned into the challenge.

That’s exactly what we’re talking about. I would argue some of those biggest banks 10 years ago, 12 years ago should have been thinking about this as well, right? And building those exact tools that others ultimately built.

But it wasn’t that they built it outside. And it’s kind of what we advocate for every day. We, you know, oftentimes traditional industry associations tend to kind of push back against regulatory oversight changes in regulatory structure.

What Penny and I do every single day is quite the opposite. We’re looking to build it. We want regulatory structure because we want the clarity to enable innovators to continue to innovate, ultimately to serve more and more consumers.

And so this idea that somehow it’s a one way street only. And I’ll, you know, again, because they’re the gorilla at the moment, Chase is not the only one, right? And I would beg them to get off the sort of this moral high ground that like, oh, we care about fraud and we care about protecting the integrity of the system.

Every responsible innovator cares just as much about the integrity of the financial ecosystem. And quite frankly, just because they’ve been around for 200 years doesn’t mean that they’re the right ones to move the financial services ecosystem forward into the future. Competition breeds excellence.

They’ve had the opportunity for 10, 12, 15, 20 years to step in, to invest in the right infrastructure, the right data, the right data aggregation tools to build their own technology. And unfortunately, they didn’t do that. And it’s easy to demonize the fintechs who have, right.

And talk about how they may, they, you know, to spread this false narrative that they don’t care about fraud detection or don’t take responsibility. I would argue our members care just as much about the regulatory infrastructure, about the ecosystem, making sure that we’re protecting sort of, again, the ultimate end consumer.

[JP Nichols]

Well, and we can talk about JPMorgan Chase’s the 800 pound gorilla or $3 trillion gorilla. A lot of customers are choosing them, right. And we’re choosing to stay with them.

And maybe they’re not as fast. Maybe they’re not as innovative as they’d like to think, but they have acquired, they have innovated, they have adopted a lot. So, I mean, it’s not like, you know, they’re Luddites.

They are doing a lot. So in fairness, and you know, Penny, they’re not going to be the last one, right?

[Penny Lee]

Well, I’m not going to be in the prediction business or argue against myself. We are, you know, it is, it is understood. I mean, there’s oftentimes, you know, one does follow another.

I think a lot of people are trying to, are looking to see what kind of pushback they’re getting. What kind of response are they getting? Is there getting traction?

Can they dip their toe into this as well? Jamie Dimon has always been very much, you know, a very much a leader. That is why they’re the largest, the nation’s largest bank and do have the $3 trillion, you know, gorilla behind them.

So, you know, we maybe we’ll see kind of how the other banks respond. Obviously, you know, Bank Policy Institute, BPI sued on this rule on behalf of the nation’s banks. So I suspect others in their own membership might be following JPMC’s bleed, but we don’t know.

[Phil Goldfeder]

I agree with everything Penny just said. And I, you know, it’s hard, you know, it’s almost again, continued with the irony, like, oh, I’m going to beat up on Jamie Dimon’s strategy. I mean, he’s clearly done something right.

However, again, I hate to invoke this example, right. But so did Blockbuster and, you know, versus sort of ultimately what Netflix created. Right.

And so there is always a point where someone has to, you know, sort of recognize the pivot and shift. Right. You can go back.

I just finished the book on on Rim. Right. And Blackberry.

Right. You don’t recognize and pivot, then you will go the way that those before you have. And just because JP Morgan has been successful thus far.

I would venture to say it doesn’t mean that they have some guaranteed ownership on the future and financial services.

[JP Nichols]

No.

[Phil Goldfeder]

And I think right now is maybe that point, whether this is the issue or it’s not right now, maybe that point.

[JP Nichols]

No bank has that guarantee. And over the long run, open wins, innovation wins, choice wins. I mean, these are the sorts of things that you can look across any industry over a very long period of time.

And it banking’s a little bit different, but it’s not all that different. Right. There are too many banks just say, oh, yeah, well, that’ll never happen because this is the banking business.

All right. Let’s take just a very short break here. Then I want to come back and talk about that bifurcation between the way the big banks are looking at this and the way the community banks are looking at this.

But first, a word from our sponsor, JP Morgan Chase. No, but we’ll be right back after this. OK, well, we were talking before the break about the big banks.

There are 5000 banks and another 5000 credit unions in this country, many of whom are partnering with fintechs and they want to compete, too. What are you hearing from, you know, outside of the top 10 or 20 banks?

[Phil Goldfeder]

I would again, as sort of our membership now is about twenty five percent made up of innovative community banks. I would say that that’s probably our still our largest source of growth in terms of on a daily basis. There are community banks, even regional banks who are now reaching out to us talking about sort of some of the challenges they’re having when it comes to innovation.

They want to understand, again, the regionals want to understand sort of what what’s happening at the community bank level or the below 10 billion dollar bank level. And I think those banks below 10 billion dollars want to understand what some of the biggest ones are doing and how they’re doing it. Right.

Whether it’s coastal or cross river or thread or some of these other kind of market leaders when it comes to innovative banks. A lot of members. What we love is members who join us, who have come into the ecosystem, who are not currently in innovative banking.

And the reason why we love those members is because it’s a recognition that it’s a recognition of those who came before them and their desire to learn what they did right and what they did wrong. There was a time, I mean, in the previous administration, I would say outside of the last six months, you know, the 18 months before that, the only regulatory clarity that we got was by reading the consent orders that innovative banks were getting. Right.

Right. So we recognize that, again, there’s a lot of learning to do amongst community banking. But all of those community banks who walk through the front door have embraced that they have to do something different.

Community banking. I mean, I don’t have to tell you the numbers are going farther and farther down since I’ve gotten in to this industry. Right.

More than 10 years ago, you’ve seen almost a decrease from 5500 community banks today. I think there’s what, 4600, depending on the day and who you ask. Community banks are struggling.

And if they don’t embrace responsible innovation and partner with fintech companies in the right way, by the way, just let me just caveat this one more time to better serve their consumers. Right. It’s not just about their own business growth.

It’s to ensure that community banks are not just serving their own communities anymore. There’s an expansion on that. They’re not going to be around in 10 years.

And that, as I mentioned earlier, and we talked about before the break, before the break, that’s not just about community banks. Right. And banks below 10 billion.

I think there’s a recognition amongst regional banks right now. I’ve talked to probably have five or six in the last month of some of the largest regional banks about sort of their strategies and how they’re implementing embedded finance and innovation. And I, again, sort of goes back to what I said earlier, it’s sort of biggest banks are not immune to that shift.

I am always encouraged when we have those conversations, whether they join us or not. Right. We’re always encouraged to have those conversations because inevitably there’s a recognition that evolution is happening.

And so you always do better when you build those collaborations, when you build the shared mistakes, so you can make sure the future is better for everyone.

[Penny Lee]

Yeah. And I would just say, you know, we partner with banks. And so it’s not like the fintech industry is there shouldn’t be this pitch battle right now.

And most of the time it is not. We partner with the banks. They are our bank partners to facilitate, you know, lending, you know, payments or, you know, all different kinds of infrastructure that is taking place.

And so there really is that divide, those that are embraced in partnering with and even, you know, some of the GSIBs, some of our member companies, you know, partner with even some of the GSIBs and they understand the value of it. So, you know, hopefully we can get back at a time when incredible amount of innovation is happening in the sector. We’re seeing it with the, you know, I joked recently on that, you know, we’re getting to clarify the stable genius bills, you know, but we’re starting to see a lot of digital assets coming into line, stable coins, all kinds of different ways in which to, you know, issue remittances cheaper, faster, making the settlements cheaper, faster, quicker, you know, all of that is happening.

And you have so many banks that do embrace that. So it’s not, and nor should it be this pitch battle, right? What you have right now with this announcement from JPMorgan Chase is trying to control, trying to control the ecosystem in which they can at the detriment of, to consumers and to innovation.

[JP Nichols]

Yeah. Which again, if I were them, I would probably be advocating for the same things, but we are better off when we have more competition and more options. And the world has changed, as you both pointed out.

I think I first went to Finnovate in roughly 2011, and most of the FinTechs on stage said, we’re going to put your bank out of business. And now they all end their talk with, come talk to us at booth 233, we want to work with your bank. And so this ecosystem has evolved.

And, you know, we, our ecosystem at Alloy Labs overlaps a lot with both of you. So we see talk to a lot of the same banks, those that are leaning in and who want to participate in this. And I know neither of you want to be in the prediction business, but let’s say, you know, the rule stands as is JPMorgan announces that their exorbitant fee schedule, and maybe even a handful of other big partner banks follow.

What do we think this looks like for FinTechs, for community banks, and for consumers?

[Penny Lee]

I’ll say something on the legal floor. If the rule is to stay as is, it does say in the rules, banks shall make available upon request information, consumers information that the bank holds. It doesn’t say upon a fee.

And so the rule holds, and that is what we are in court arguing for. One, that it says upon request, which means without a fee, and two, that a consumer can permission their data to an individual or an individual can permission it to as a consumer agent representative or trustee. And so that is allowable under the current rules.

So in that prediction, I would say they would have to, they would have to pull back on that fee. They would have to, you know, withdraw where they’re at, what I would hope. And I think that there is a reasonable conversation, you know, there’s a conversation to have, you know, is there a reasonable fee to be assessed?

I think that’s a discussion. Is there amount to pay for both bank infrastructure, aggregator infrastructure? Is there a way to, you know, pay for assessed fees accordingly?

I think that’s a reasonable conversation. What you saw from JP Morgan was exorbitant, like out of, you know, stratospheric reported fees.

[JP Nichols]

This is model breaking.

[Penny Lee]

This is model breaking. And so you will have to see, you know, to then continue to offer the services, offer the products in the marketplace, you will likely, as to what Phil was saying, revert back to old, revert back to either screen scraping or AI-assisted screen scraping, which, you know, no one is advocating for. And this rule was trying to phase out was that aspect.

So I think you will find just an entrenchment, an unfortunate entrenchment with all the progress we’ve made.

[Phil Goldfeder]

Yeah, by the way, that’s an important point, right? Because I think there’s an argument, you know, about what the actual number is. Is it de minimis?

Can it be kind of just generally absorbed without a huge impact on the ecosystem? I think what Penny said was critically important. What is, you know, sort of, I think in a lot of the conversations that we’ve had with our membership is that the number was exorbitant, right?

The number that JPMorgan had put out to some of the biggest aggregators was well more than arguably the revenues that they’ve made off of that same exact data. And so, again, you know, it doesn’t, it’s not a good start when it comes to are we going to collaborate? Are we going to figure out how we can utilize?

I mean, I would argue the aggregators are helping the biggest banks as much as the banks are helping the aggregators, right? You’re enabling that ecosystem. And let’s be honest, it enables a big bank customer to stay in some of his accounts or some of his operations at that big bank.

But I want to fast forward and, you know, I use my daughter in talking about the future. My daughter is not going to need that foundation in the bank. Maybe I do.

Maybe we do here, right? Like, oh, I’ve been using a big bank for so many years. I’m so, but my daughter is starting for today, right?

And so she’s more likely to go to Dave or current or any one of the other banks that are offering a better service, right? At a fraction of the cost that I’m probably paying or paid throughout my lifetime at JPMorgan. And so, again, to me, it’s really a question of where we go and how are you thinking about the end consumer and not the consumer of maybe you and me.

But I also, it would be, I’d be remiss if I didn’t throw some shade at Ron, right? Because I think he also, I think, you know, sort of in one of the responses to in the conversation was like, oh, I’ll help you collect your own data so you could share it if you want as a consumer can share their own data if they choose to. I think that like our financial lives has gotten so complicated today, right?

It’s not just about one bank account, one bank account number, and my name and address, right? You’ve got apps, you’ve got brokerages, you’ve got other sort of ways, whether you’re in debt and or you’re successful and have a healthy financial future, any way you slice it, you still have a very complicated financial picture that right now usually runs through a single place as it connects to all the others that you engage in. So I think it’s easy to dismiss the idea that like aggregation is this sort of this, it’s simply as let the consumer share the information.

As a customer of a large bank, you are entitled to just sort of, you know, getting a fair picture of what your financial outlook and what your financial financials look like, and your ability to share your own information that is proprietary only to you as the consumer should not be withheld or slowed down in any way, shape, or form.

[JP Nichols]

Okay, Ron, coming up next week, counterpoint with Ron Shevlin. You know, 10 years ago, they were having this conversation all across Europe, right? With PSD and PSD2.

What might we learn from how that got resolved? Because the big banks didn’t want to provide access to data and it ended up being, you know, what was finally implemented was pared down from the original ambition of it. Any parallels?

Anything there that might help us read the tea leaves going forward?

[Penny Lee]

Well, I will say, you know, Phil and I were at a dinner recently with a lot of finance ministers from across the globe, in particular in Europe and in the UK. And, you know, one individual was saying that she was going to go get a new car. And so they were asking for an auto loan and they asked her for a physical check, you know, to then void and to be able to make the first payment.

I haven’t written a check in 10 years. I don’t even know that I own a check, wouldn’t even know what to look like. I barely remember how to fill one out.

So, you know, Europe, UK, Singapore, Brazil, India, so many other jurisdictions are way ahead of us because they did embrace this open banking, open finance, the ability to share information for consumers to be able to permission their data as they see, to be able to have access to incredible amount of tools and services. You know, when, you know, when you come to, you know, when you’re in the United States and you’re at a restaurant, you hand somebody their credit card, they disappear to a backroom, don’t know if you’re going to get the same card or what is being charged, you know, whereas, you know, in Europe you get it right at the table and there’s just a much more seamless way in which to make payments. And so I think they’re a model on what is ahead because they are ahead of us in payments, in settlement, in being able to have access to your funds cheaper, faster, and more accessible.

So that’s kind of where we are heading. Hopefully, you know, it would be a shame that, you know, the United States, leader of innovation, you know, all of the tools in which we build and send across the globe that here in the United States, we’re going to get left with, you know, being simply told all you need to, all you’re able to receive is a PDF of your bank. So it tells you that your savings account is, you know, your savings interest rate is 0.0001 versus being able to permission your data into a high deal savings account of your choosing to be able to, you know, have that fruitfulness. So it would be a real shame if we were, you know, go that far back.

[JP Nichols]

We’re already behind, right? So here’s a question. Does rule 1033 as currently written go far enough?

If you’re writing the bill, would you add anything to it?

[Phil Goldfeder]

That’s a great question. I mean, you know, you got to, you need a foundation, right? You need, you need a place to start.

I think they’re absolutely, and Ian on my team is going to yell at me for not digging into some of the things he’s been beating on me about, but I kind of feel like, again, getting ahead of yourself in terms of creating a foundation that you can build on. And so I’ll take the imperfect. And I think both Penny and I agree the current rule as it is, is not perfect.

And we may, you know, she’s made that clear. I’ve made it clear in our proposed amicus brief that we submitted in support of the lawsuit, that like, we still think there are, there are holes in the current rule, but we have to start somewhere. And by the way, starting somewhere may, you know, create some friction and create some problems and create some gaps in the short term, but we’re not building for the short term.

We’re building for the next hundred years of financial services and not because chase or plaid or any one of our members is sort of demanding it. It’s because the consumer is demanding it. It’s because my grandkids are demanding it.

That’s what it comes back down to. And so I think, you know, sort of by, by digging in for the sake of digging in, we’re not doing anybody any favors. And so I, like I said, I think we need a foundational principle and where we can live.

And unfortunately, as Penny said earlier, and we kind of all joked about it almost too quickly. Like we’ve been playing with this for 14 years, right? 14 years, we’ve been sitting on this.

I think when we went through the rulemaking process, I was nervous. I think I’m sure Penny had a lot of sleepless nights. I know her members and, and, you know, I there’s, it is sort of not a simple sort of process.

And when we got to the end, we weren’t happy, but I think we recognize there was a recognition, at least from the industry that we were making sort of forward progress and it gave us some time to build on.

[JP Nichols]

Well, and I think there’s plenty of PTSD of unintended consequences from the Durbin amendment and other aspects of Dodd-Frank that, you know, maybe he’s a little bit understandable, but I find myself more and more and more often going back to an old Upton Sinclair quote, it is difficult to get a man to understand something when his salary depends on his not understanding it. So, right, if we’re trying to convince the banks, you know, why this is good for you and it is, you know, very disruptive to the way they’ve been doing business. So this has been great and we only have a few minutes left, but the other thing that we’ve been kind of missing here is we keep saying the word consumer and, you know, maybe all of us and listeners are envisioning, you know, human beings, individuals.

I mean, this impacts small businesses and small business growth and not even just small businesses. Last week, we played a show we did with our, you know, late great Barb McLean, and we were talking about small business. And one of the challenges that we have there is that banks view small business and then what they might call middle market, you know, bread and butter commercial business.

The rest of the world outside of banks call those small businesses too, right? You’re a $20 million a year metal fabricator with 28 employees or whatever. That’s not the same as a micro business, a sole entrepreneur or whatever, but that’s still a small business by most measures.

And they are increasingly turning to fintech tools of one sort or another to help them manage. And Phil, you pointed out how difficult and complex our personal income statements and financial statements have become. That’s nothing compared to the businesses, right, who have all kinds of different cash flows coming in and out.

What are you hearing and seeing and thinking about going forward on the impact of businesses? Penny, I’ll start with you.

[Penny Lee]

Yeah, it is. And, you know, we were focused a little bit on the consumer, but that begets also the small business too. And they use this information and this data from a consumer to be able to underwrite cash flow, underwriting, and to be able to, you know, revenue-based financing, to be able to understand, you know, what a small business needs as far as building out their 401k, all kinds of aspects, treasury management, budgets, you know, intake and outtake, and just understanding flow of inventory.

All of that information does go into the small business. And large part, large banks have abandoned that, you know, they would say from regulatory pressure, they really can’t lend to anybody under $100,000 in that loan size. And so fintechs have filled that gap.

And without the access to this data for consumers to be able to permission it to that small business, to that underwriting capacity, they will be harmed. And so you just, there’s a ripple effect that is taking place with it. But I would also say, you know, I think both and I would agree on this, and sorry, Ron, we’re not disagreeing anymore.

But, you know, what you said, you know, the long 14 years of this going through in multiple administrations, we do seek clarity. The industry seeks clarity. That’s what we were hoping for this finalization of the rule that happened in October of 2024 was, you know, clear rules of the road.

Because as you saw, when there’s ambiguity, you know, players will come in and either charge fees or deny services or pull back on the information. And so we do want whatever is promulgated at the end, whatever, you know, whatever the courts decide, that that gives that clarity and that certainty that can last multiple administrations. So we’re not hitting these pendulum swings that doesn’t nobody any good.

[JP Nichols]

Well, Phil, let me ask you, and then Penny, I’ll give you the final word on this. Here’s the $64,000 question. Is open banking dying or are we just growing up?

[Phil Goldfeder]

This is the maturity process. And let me just stop for a second because I wasn’t a part of last week’s episode and just sort of condolences to Barb’s family. And, you know, her and I just, I had the opportunity to work with her when she was at the bank before her previous, the latest endeavor.

And it was just, she was such a pleasure to work with and just so full of life. And so yes, just a tragedy and sort of my best wishes and condolences to her family. Thank you.

The answer is no, we’re going through a maturity process. This is every industry goes through this process. And historically you go through any evolution when it comes to innovation, there’s going to be incumbents that are going to push back and they’re going to use every tool in their toolbox.

Let me just, I, maybe I should say this and maybe I’ll make Ron a little happy. I don’t necessarily, I don’t necessarily blame Chase for what they’re doing, right? Like I kind of, there’s a part of me and I think I started the conversation with, like, I kind of understood there’s an under, there’s a way to understand what they’re doing.

It doesn’t make it right, right? It doesn’t make it right for their customer. It doesn’t make it right for the customer of the FinTech company.

And so what I, again, and I’m, I’m, I’m a very pragmatic guy. And I, you know, for me, it would, I would have liked to have seen more of a collaborative approach to what they’re trying to accomplish, right. And how they’re trying to sort of maintain their business model and their infrastructure working together with the FinTech ecosystem.

I think what I have seen over the last 10 years is mostly like pretend it doesn’t exist, pretend it doesn’t exist, try and roll out a product that competes, try and roll out a product that competes. And now I think this is like kind of the next step of that is like, okay, so how do I now stop those guys? Because I clearly can’t compete.

And so I do think this is an evolution that we’ve seen time and time again. I have books on my shelf that tell the story of all the innovators that, that tried and tried to hold on until they couldn’t anymore. And so exactly, right.

And I I’ve gone through them all. And again, I, I, nothing is guaranteed in life and I don’t know how the story ends. And as Penny said, I hate to make predictions because I never like to be wrong.

But that being the case is to me, I would have liked that. I would have liked to see this next step of this story a little bit different, right. Working with the aggregators, working with the FinTech companies to kind of figure out how to work together in the best interest of the shared consumer, right.

And small business.

[JP Nichols]

Well, hopefully that’s where we go, but Penny, is open banking dying or just growing up?

[Penny Lee]

I don’t think the consumers are going to let die. They’ve enjoyed what they have. And that is as, you know, as Phil’s daughter is illustrative of it, you know, the multiple different ways in which they can engage or, you know, budget, save, build credit, all the different aspects.

And so if we’re, you know, if it’s now told, I’m sorry, you’re not going to be able to have access to be able to share to your friend, be able to split the bill at a restaurant, being able to send instantaneous thing to pay for, you know, a service, you know, a home repair or whatever the case that’s now been cut off. That is the consumers will react. And so that notion of open banking being dead, I think consumers are going to going to protest and won’t allow for it.

So innovation will still occur. In what form? We still got to go through, as Phil was saying, some maturity.

And we still got to go through a couple of cycles of where exactly it lands at the end of the day, especially from a regulatory clarity standpoint. But it’s too much innovation. It’s too global.

You know, they’re going to compete against incumbents across the globe. And it would be a real shame if America was actually left behind.

[JP Nichols]

OK, well, open banking is dead. Long live open banking. So thanks to you both, Phil Goldfeder of the American FinTech Council and Penny Lee of the Financial Technology Association.

We’ll be back next week with more Breaking Banks.