Commoditizing Connectivity

This data is the lifeblood of open banking, where third-party APIs enable customers to have full visibility into their finances and the ability to switch financial institutions when better products emerge.

In regions such as the UK and European Union, open banking has been emphasized as a critical component of future economic growth, driving the development of regulatory frameworks. The EU’s Revised Payments Service Directive (PSD2) was issued with PSD3 on the horizon, aiming to enhance competitiveness among banks and eliminate unsound practices.

“Initially, companies like Plaid and Trustly came to market by using screen scraping, which is less secure,” Gaughan explained. “This method filled a need alongside the emergence of personal financial management tools. It was one of the first use cases for data aggregation, getting different financial information in one place.”

While screen scraping was once common, it raised privacy and fraud concerns. Consequently, PSD2 established APIs as the preferred method for banks to connect with third parties.

In the U.S., fintechs have also moved away from screen scraping, driven by market forces rather than regulatory mandate. With thousands of financial institutions, broad regulation is more complex compared to the consolidated UK and EU markets.

Despite these differences, the U.S. is steadily moving toward an open banking model, meaning that fintechs—particularly aggregators—play a critical role domestically as they do internationally.

“These guys started out screen scraping, then moved to open banking APIs and services as an API layer to help connect banks to all the many different fintechs—including personal financial management or workplace management—to allow them access to data,” Gaughan said. “That model has worked for a long time but is becoming more commoditized because they’re essentially providing similar infrastructure.”

A Concerted Effort to Assert Control

As data access and management tools have improved, leading aggregators are adapting their business models accordingly. They’ve augmented their offerings by providing more value-added services such as better loan decisioning for certain institutions.

Akoya is an example of a financial data aggregator network that does similar things but with a twist: it’s partially owned by 11 different banks and financial institutions, including some of the biggest banks.

“Upon Akoya’s market entry in 2020, JPMorgan Chase highlighted plans to charge for accessing their financial data. PNC and Wells Fargo directed their clients to use Akoya more,” Gaughan noted. “You’re seeing a concerted effort by banks to assert control over this space, especially as regulatory guidelines are becoming more defined.”

An Inherent Tension

The U.S. has seen a rollercoaster of regulation, with the Consumer Financial Protection Bureau finalizing Section 1033 rules for open banking over a year ago, though questions remain about the framework.

Banks are acting to address what they perceive as an imbalance with fintechs, not just regarding free data access but also many API calls from aggregators that weren’t customer-initiated. They sought marketing insights or product improvements instead.

“Aggregators make money off consumer financial data through one-time fees, usage-based fees, or subscription fees,” Gaughan said. “There’s an inherent tension because banks are trying to control this space while aggregators see it as a revenue source.”

Despite these tensions, aggregators remain indispensable. Aggregator-bank codependence means that even if banks could develop their own product APIs, it would be time and resource-intensive.

“It’s hard to say exactly,” Gaughan concluded. “But I don’t think there’s a scenario where financial data aggregators go away. There’s a bit of codependence between banks and aggregators.”