Financial infrastructure company Plaid made a relatively quiet announcement last week that will have a big impact on open banking in the U.S. The California-based company unveiled that it has migrated 100% of its traffic to APIs for major financial institutions, including Capital One, JPMorgan Chase, USAA, Wells Fargo, and others.
Taken at face value, this announcement appears to be nothing more than a fintech adding new bank clients. Looking deeper, however, there are three significant aspects of Plaid migrating its traffic to the banks’ APIs.
First, today’s move shows banks’ shifts in attitude toward open banking. Because the U.S. does not have regulation surrounding open banking, many U.S. banks don’t have the motivation to make consumers’ financial data open to third parties or don’t want to deal with the security implications that opening up consumers’ data to third parties may have. Additionally, in some cases, the banks do not want to make consumers’ data available to third party applications because the banks believe that they own the consumers’ data– or at least believe that they own the customer relationship.
The second significant impact of Plaid’s recent move is that it means that third party apps won’t need to rely on screen scraping to retrieve consumers’ data. The practice of screen scraping in financial services is less than ideal for multiple reasons, including:
- It requires consumers to share their bank login credentials with a third party, which may not have the same level of security as a bank.
- Since screen scraping extracts data based on the visual elements of a website, if the bank redesigns its website or changes the layout, it can result in inaccurate data retrieval.
- Screen scraping simulates user actions and requires a response from the bank’s website, which may slow the performance of the bank’s website, especially if multiple apps are screen scraping at once.
- Because screen scraping is essentially unauthorized access to a bank’s systems, the act of doing so may violate a bank’s terms of service.
As for the third impact– now that Plaid is working with the four aforementioned major U.S. banks to migrate traffic to APIs, it sends a signal to smaller banks, credit unions, and community financial institutions, which are more likely to follow suit. Potentially expediting the need for other financial institutions to jump on board, Plaid has also signed agreements with RBC, Citibank, and M&T, which will be migrating Plaid’s traffic to their APIs in the coming months.
“Our goal is to remove the need to rely on screen scraping in order for consumers to use the apps and services they want, and the momentum across our API integrations will help the industry get there faster,” Plaid Head of U.S. Financial Institution Partnerships Christy Sunquist said in a company blog post.
Despite the significance of this month’s announcement, there is still much work to be done. Some U.S. banks, such as PNC, are notorious for their unwillingness to work with Plaid, in essence taking a “closed banking” approach. Such attitudes may not prove beneficial in the long run, however, as many of the bank’s customers feel they are being shut out from essential third-party financial tools.
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