Oct 5, 2017

The coming war over your financial data

Illustration: Sam Jayne / Axios

A growing number of consumers are embracing apps that mine their online saving and spending habits, and then recommend better financial decisions. Mint, Expensify, and Venmo are helping millions of users move money, invest, and plan their future.

But the picture is much bigger: The firms making these apps, part of the world known collectively as "fintech," collect, store and then sell their users' anonymized data, an industry previously controlled solely by traditional banks. Now, fintech firms and banks are locked in the opening salvos of a war for control of the consumer financial data, and the billions of dollars in fees that they earn.

What the war is about: The most valuable commodity in the modern economy is information—just ask Google and Facebook. Banks sit on a treasure trove of the most valuable type of information: financial data. Enter fintech companies, whose services include handling customer deposits, just like traditional banks, and also selling their anonymized data to research firms and hedge funds.

What happens is that customers enter their banking data into an app, and thereby open a spigot on their inner-most financial secrets to the fintech firms.

But banks are becoming uncomfortable with this set of circumstances, since they've held total control over the data until now, and bristle at the idea of startups horning in on their business. Industry insiders tell me that over the past six to nine months, banks have increasingly put up hurdles and even roadblocks to the data that had been going to the fintech firms via their apps.

App users are unhappy with the war: Mario Da Costa is 25 and works in education policy in Washington D.C. He tells Axios that he uses a fintech app called Qapital, which helps him set savings goals and then automatically siphons off money from his bank account to a separate account. That way, he's not tempted to spend more than he has budgeted.

  • But in June, he says, his main bank, TD, began restricting the app's access to his data. It has since been restored, but he says that further interruptions could cause him to switch banks.
  • Industry insiders tell Axios that banks have increasingly resisted sharing data with fintech companies despite customer requests that they do.
  • Mario's experience dovetails with complaints on social media

What the banks say: TD tells Axios that any interruptions to its services is the result of its overriding concern for security. "TD Bank does not have a policy against customers linking their TD bank accounts with third parties. However, we take the protection of our customers' assets and data seriously," the bank said.

  • High-profile banks face reputational harm if their financial data is compromised
  • And banks like Chase have said they won't work with companies that profit from selling user data, arguing that it compromises privacy.
  • Banks and Wall Street firms has preferred instead to come to bilateral agreements with individual fintech firms. Wells Fargo and J.P. Morgan announced such agreements earlier this year.

What the law says: A provision of the Dodd-Frank financial reform law requires banks to share data with whomever consumers want them to.

  • The Consumer Financial Protection Bureau, which was tasked by Congress to make rules around these issues, has yet to weigh in. And with rumors that current head Richard Cordray will leave to run for political office, consumer advocates worry that sound regulation on this issue will be delayed even further.

The bottom line: Fintech can't solve economic problems like rising financial insecurity, but consumers would benefit from their data and financial assets becoming more portable, so that all types of financial services companies could compete with more services and lower fees.

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