It has been reported that the payments processor Visa has shuttered its open-banking business within the United States. This development has been attributed to the mounting tensions that exist between financial institutions and fintech companies regarding the access to customer data. The unit in question provided various tools to fintechs, which were used to gain easier access to bank data, thereby assisting in the facilitation of smoother sign-ups and money transfers for customers. The future of open banking has, however, been clouded by disputes between banks and fintechs, which have fueled significant doubts.
It was stated in a report that a major financial institution had informed fintechs that they might be required to pay substantial fees to access customer data. A similar consideration was also voiced by the CEO of another large bank. It is argued by banks that such fees are considered necessary for the purpose of recouping the cost of safeguarding and delivering customer data. On the other hand, it has been contended by fintechs that banks should not be permitted to charge for information that is ultimately the property of the customers themselves, and it is felt that such fees would have a devastating effect on their business models.
A parallel was drawn by a venture capital partner, who likened the fees to a historical strategy in which regulators were alleged to have restricted certain industries’ access to financial services. In response to the evolving market conditions, it was stated by a spokesperson for Visa that the company was now focusing its open banking strategy on high-potential markets, such as Europe and Latin America.
Open banking has seen considerable traction in Europe, where a regulatory framework has been established that requires banks to share data with licensed third parties. The United States, in contrast, lacks such overarching rules, and the adoption of open banking practices has been left to private agreements between individual entities. However, efforts to clarify the framework in the U.S. are currently underway. A governmental body was recently reported to have commenced a rewrite of its regulations that govern the control that consumers have over the sharing of their personal data between banks and fintechs.
The closing of Visa’s open-banking unit in the U.S. was first brought to public attention by a news report. This action is seen as a symptom of the broader, unresolved issues within the U.S. financial landscape. The lack of a clear, nationwide regulatory framework has resulted in a fragmented and uncertain environment where the rules of engagement are not universally defined. In such a market, private disputes over data ownership, security costs, and business models are to be expected. The decision by a major player to exit this market segment is a strong indicator of the current instability.
Ultimately, the disagreement over whether bank data should be considered a proprietary asset or a customer-owned resource is at the core of the conflict. From the perspective of the banks, significant investments have been made in infrastructure to secure and manage this data, and it is argued that these costs must be recovered. From the perspective of the fintechs, however, these fees are seen as a form of rent-seeking that hinders innovation and competition. This schism has created a difficult operating environment, and until a clear, government-mandated framework is established, a resolution is not expected to be found. The ongoing regulatory rewrite is considered to be a key step towards addressing this, as it may provide the necessary guidelines to facilitate a more equitable and efficient market for all participants.
