Report on Proposed Data Access Fees in the U.S. Open Banking Sector and Implications for Sustainable Development Goals

A recent development initiated by JPMorgan Chase threatens to alter the landscape of open banking in the United States. The financial institution has entered discussions with data aggregators to implement a fee-based model for accessing customer financial data. This report analyzes the proposal’s potential impact on financial innovation, consumer rights, and its significant implications for the achievement of the United Nations Sustainable Development Goals (SDGs).

The U.S. Open Banking Context and its Alignment with the SDGs

The U.S. open banking ecosystem has evolved primarily through private-sector initiatives rather than government regulation. This market-driven approach has allowed data aggregators such as Plaid, Finicity, and MX to access consumer banking data at no cost, facilitating a wave of financial technology (fintech) innovation. This innovation directly supports several key SDGs.

Fostering Financial Inclusion and Economic Growth (SDG 1, 8, 10)

The seamless connectivity between banks and third-party applications has been instrumental in advancing key development goals:

• SDG 1 (No Poverty) & SDG 10 (Reduced Inequalities): Fintech services offering budgeting, accessible credit, and investment tools have expanded financial inclusion, providing critical services to populations underserved by traditional banking, thereby helping to reduce poverty and inequality.
• SDG 8 (Decent Work and Economic Growth): The fintech sector stimulates economic growth by creating a competitive environment, fostering innovation, and providing small and medium-sized enterprises (SMEs) with new tools for financial management.
• SDG 9 (Industry, Innovation, and Infrastructure): The existing data-sharing framework represents a vital component of modern financial infrastructure, promoting widespread innovation.

Analysis of JPMorgan Chase’s Proposal

Rationale for Data Access Charges

JPMorgan Chase justifies the proposed fees by citing the significant resources invested in creating and maintaining a secure data infrastructure. The bank argues that data aggregators, which profit from this infrastructure, should contribute to its upkeep. This move is framed as a step towards a more secure and balanced data-sharing ecosystem, protecting customer data while ensuring the sustainability of the underlying infrastructure.

Impact on the Financial Ecosystem

The introduction of fees is expected to have a cascading effect. Data aggregators, whose business models have relied on free access to data, will likely pass these new costs on to their fintech clients. Ultimately, these costs may be transferred to consumers, potentially making previously free or low-cost financial management tools more expensive.

Implications for Sustainable Development Goals (SDGs)

The proposal to charge for data access poses a direct challenge to progress on several SDGs by potentially reversing gains in financial inclusion and innovation.

Threats to Financial Inclusion and Equality (SDG 1 & SDG 10)

Increased costs for essential fintech services could create significant barriers for low-income users and underserved communities. This would undermine efforts to achieve universal financial access, a key target of SDG 1 and SDG 10, potentially widening the financial inequality gap.

Hindering Innovation and Sustainable Infrastructure (SDG 9)

A fee-based model could stifle the innovation central to SDG 9. By increasing operational costs for fintech startups, it may reduce competition and slow the development of new financial products that meet unmet consumer needs. This could lead to a less dynamic and less resilient financial infrastructure.

The Need for Strong Institutions and Regulatory Frameworks (SDG 16)

This development occurs within a context of regulatory uncertainty, highlighted by the Consumer Financial Protection Bureau’s (CFPB) plan to rescind the forthcoming Section 1033 rule on open banking. This situation underscores the need for strong, transparent, and accountable institutions, as called for in SDG 16. A clear regulatory framework is essential to balance the interests of established financial institutions with the public good of innovation and consumer data rights.

Future Outlook and Path Forward

JPMorgan Chase’s action may compel other financial institutions to adopt similar fee-based models. The resulting uncertainty could have several consequences for the market and its alignment with sustainable development.

Potential Scenarios

• Acceleration of Standardized Protocols: The move could push the industry towards more secure, API-based data-sharing standards like those from the Financial Data Exchange (FDX).
• Risk of Regressive Practices: Conversely, financial pressure might incentivize some aggregators to revert to less secure methods like screen scraping to avoid fees, posing a risk to consumer data security.
• Increased Costs for Consumers: Higher fees passed on to consumers could reduce the adoption of beneficial fintech tools, particularly among those who need them most.

Recommendations for a Sustainable, SDG-Aligned Framework

The current situation highlights an urgent need for regulatory clarity. A revised version of a federal open banking rule, such as Section 1033, is necessary to create a stable and equitable environment. Such a framework should be developed in the spirit of SDG 17 (Partnerships for the Goals), fostering collaboration between banks, fintechs, regulators, and consumers. The primary objective must be to establish a system that ensures data security, promotes innovation, protects consumers, and continues to advance the goals of financial inclusion and sustainable economic growth for all.

Analysis of Sustainable Development Goals (SDGs) in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

1. SDG 8: Decent Work and Economic Growth
   • The article discusses financial innovation through fintech apps which contributes to economic productivity. The potential disruption by charging for data access could impact the growth of these fintech companies, many of which are small and medium-sized enterprises, thereby affecting economic growth and development-oriented policies.
2. SDG 9: Industry, Innovation and Infrastructure
   • The core of the article revolves around the infrastructure of open banking, technological innovation, and the financial services industry. JPMorgan’s decision directly impacts the technological framework that enables data sharing and could either stifle or accelerate innovation depending on the outcome. It highlights the need for secure, standardized, and accessible infrastructure for the digital economy.
3. SDG 10: Reduced Inequalities
   • Open banking has the potential to increase financial inclusion by enabling fintechs to offer accessible and low-cost services to a broader audience. The article warns that passing on data access costs to consumers could make these services more expensive, potentially creating barriers for lower-income users and exacerbating financial inequalities.
4. SDG 16: Peace, Justice and Strong Institutions
   • The article points to a lack of strong, clear institutions and regulations governing open banking in the US, citing the rescinded Section 1033 of the Dodd-Frank Act. The debate over data ownership and the need for a “more structured, regulated model” directly relates to the development of effective, accountable, and transparent institutions.
5. SDG 17: Partnerships for the Goals
   • The issue described is a multi-stakeholder problem involving private sector entities (JPMorgan, Plaid, Finicity, MX, fintechs), consumers, and regulatory bodies (CFPB). The article details the “discussions” and “productive conversations” between these groups, highlighting the need for effective public-private partnerships to create a sustainable and balanced data-sharing ecosystem.

2. What specific targets under those SDGs can be identified based on the article’s content?

1. Under SDG 8: Decent Work and Economic Growth
   • Target 8.2: “Achieve higher levels of economic productivity through diversification, technological upgrading and innovation…” The article discusses how fintech apps for budgeting, investing, and lending represent technological innovation that drives productivity. JPMorgan’s move could slow this innovation.
   • Target 8.10: “Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.” Open banking, as discussed, is a mechanism to expand access to financial services through third-party apps.
2. Under SDG 9: Industry, Innovation and Infrastructure
   • Target 9.3: “Increase the access of small-scale industrial and other enterprises… to financial services…” The article highlights how new fees could “create barriers for fintechs,” many of which are small enterprises that need access to the banking infrastructure to provide their services.
   • Target 9.5: “Enhance scientific research, upgrade the technological capabilities of industrial sectors… encouraging innovation…” The debate centers on the technological capabilities of the financial sector and the incentives for innovation. The article notes that the new cost structure could “slow innovation.”
   • Target 9.c: “Significantly increase access to information and communications technology…” The entire open banking ecosystem is built on access to ICT, specifically API-based data sharing. The article discusses making this access more secure and standardized.
3. Under SDG 10: Reduced Inequalities
   • Target 10.5: “Improve the regulation and monitoring of global financial markets and institutions…” The article explicitly mentions the need for “centralized open banking rules” and references the CFPB’s role and the potential for “new regulatory frameworks,” which aligns with this target.
4. Under SDG 16: Peace, Justice and Strong Institutions
   • Target 16.6: “Develop effective, accountable and transparent institutions at all levels.” The article’s call for “clarity that centralized open banking rules would provide” and a “more structured, regulated model” points directly to the need for such institutions to govern data sharing.
5. Under SDG 17: Partnerships for the Goals
   • Target 17.17: “Encourage and promote effective public, public-private and civil society partnerships…” The article describes the complex interactions and “productive conversations” between banks (JPMorgan), data aggregators (Plaid, etc.), fintechs, and regulators (CFPB) as they work to shape the open banking framework.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

1. Cost of data access: The article states that the cost for aggregators has “essentially been zero.” A key indicator would be the new fee structure implemented by JPMorgan and other banks. This measures the financial barrier for fintechs (relates to Target 9.3).
2. Cost of consumer financial services: The article implies that services that were “once free or low-cost could become more expensive.” Tracking the price changes of third-party fintech apps would be an indicator of the impact on consumers and financial inclusion (relates to SDG 10).
3. Adoption of standardized protocols: The article mentions the potential to “accelerate the adoption of more secure, standardized data-sharing protocols, such as those developed by the Financial Data Exchange (FDX).” The rate of adoption of FDX or similar API-based standards over less secure methods like screen scraping is a measurable indicator of infrastructure improvement (relates to Target 9.c).
4. Regulatory framework development: The status of Section 1033 is a key indicator. Whether it is “rescinded,” “revised,” or replaced with a new framework measures progress towards creating “effective, accountable and transparent institutions” (relates to Target 16.6).
5. Rate of market innovation/entry: The article suggests the new costs could “slow innovation and reduce incentives for new entrants.” An indicator would be the number of new fintechs entering the market or launching new products that rely on open banking data (relates to Target 8.2 and 9.5).

4. Summary Table of SDGs, Targets, and Indicators

Source: finovate.com