The Great API Debate: Should Banks Charge for Access? with Huw Davies

Welcome to Money Isn’t Everything. I’m Mary Wisniewski, Cornerstone Advisors editor-at-large and host of the show that explores early-stage ideas that could, if not already, shake up financial services.

Today on the show is Huw Davies, who is the chief executive and co-founder of Ozone API.

This is a company that helps banks all over the world implement APIs.

He has also worked at banks, so he is multidimensional.

We had a really lively conversation on what’s becoming quite the soap opera over here, whether to charge for data or not, and/or how to make it fair.

So we get into JPMorgan Chase’s plan to charge data aggregators for access to data from the bank’s API.

And there’s a bonus here because he has a much wider perspective, with all the lessons learned from other countries, including the ways to commercialize the model, but maybe not for every API.

Here’s our conversation.

Huw, welcome to Money Isn’t Everything.

Thanks so much for joining me here on the show today.

Thanks, Mary.

No, it’s a pleasure.

Yeah.

I’m so excited to talk to you because I saw your LinkedIn post not too long ago about having a hot take on JPMorgan Chase planning to charge data aggregators.

You have such a wider perspective on this debate because of your work in the U.K. and other countries.

So we’re going to grill you.

But to set the stage, what kind of ripple effects are you expecting from the biggest bank in the U.S. saying, hey, data aggregators, you’re actually going to pay me for using my API to get bank data?

Yeah.

Well, I mean, it is a big, bold move, and I think there are already a number of ripple effects in terms of just the reactions of the different players in the ecosystem.

Probably the timing is very considered.

We’re at a point where there’s a period of hiatus around the 1033 regulation and the regulatory path around data access and consumer data rights and open finance in the U.S.

I suspect that is a big part of the decision around timing.

Whilst there’s this hiatus in terms of the regulatory momentum, it looks like opportunity is being taken to sort of reset the game from a commercial perspective and charge for, or set some fees for, third parties to access this data.

It’s a complex value chain.

So in open banking you have the banks exposing the APIs that enable access.

You’ve got this industry of aggregators or data access providers that create that connectivity into the different banks, but also do a whole load of other stuff around the normalization and the categorization of the data.

Then you’ve got all of the many different apps and services that use that access to help solve customer problems.

Fundamentally, I think it’s going to create some challenges to the business models through that value chain because right now they’re based on not paying the banks for that access.

So it’s a big, bold move that I think will have knock-on implications in the value chain.

But it drives a really interesting debate.

I think what we’re seeing is some very strong, almost zealot-like strength of opinion from different players depending on which side of the ecosystem they sit.

Personally, I think it drives a really important debate around the ongoing business model and how you create a long-term sustainable ecosystem that’s good for the end customers.

Yeah.

And I want to get more into that, but I want to underscore also this big debate because it is remarkable.

I haven’t seen something so heated probably since, here in the U.S., credit unions buying banks.

There’s always a fury around that.

But this is one of the hottest issues because on one hand you’ll have the banks saying, hey, this is for security.

Also, we’re paying for the infrastructure cost, and that price is going up with so many dings coming to us.

Of course, on the other side it’s like, “Hey bank, you’re a jerk, and you’re claiming the data as yours, but it’s the customer’s.”

From my standpoint, this is a storyline I used to cover at American Banker, and it just seems it’s not black and white.

I think it’s very murky.

Sometimes there are villains, but in this particular story I think it’s a lot murkier of what’s the best path forward.

But you kind of already said this, so I’m just going to get right into it.

One segment here that we have is “That’s What You Said,” and “That’s What You Said” is something you wrote on LinkedIn.

It underscores also what you were just saying.

It was, “Personally, I think this is exposing an important debate. For open banking and open finance to really unlock the true potential, providing great APIs needs to be a value- and revenue-generating activity for the banks. There, I’ve said it.”

Let’s talk about what you said because that is a provocative point of view.

Tell me why you think that.

Yeah.

And you’re right, it generated a huge amount of debate.

I actually did that post just before I was leaving for vacation.

Oh no.

The next day I was at the airport.

I was actually flying over to Florida, and the feed was going crazy.

It really generated a lot of debate.

But no, I believe this quite strongly, that there has to be a balanced commercial model around open banking, open finance, for it to be really sustainable and value-adding for end customers in the long term.

That doesn’t necessarily mean I think this move is the right one.

But for banks, I guess historically their core channel to market has been their branches, their mobile app, their online banking.

Now, in this new world, APIs act as a channel, a way that banks can embed financial services experiences wherever their customers are.

So in third-party platforms, in marketplaces, embed better ways to pay in digital journeys.

I think it becomes a real core part of the business model.

We’re working with many banks around the world to help them implement their open APIs, and we’re seeing a number of different strategies around commercialization.

Actually, in many countries, customer data rights are regulated.

So there are quite a few markets where it wouldn’t be possible to charge for access to basic information like balances and transactions.

In a number of different countries, that’s seen as a data right.

Banks have to implement the capabilities to allow trusted third parties to access it on the customer’s behalf.

But that doesn’t mean there shouldn’t be a business model that helps drive a really good return on investment for banks to have great APIs.

Now, that can come from enriched information, sort of doing more than just basic balance and transactions.

Banks can help customers unlock identity because they’ve spent a lot of time getting to know their customers, validating their identity, and that can help third parties.

There’s a lot of space for monetization of complex payments and solving the payment value chain.

These APIs should be a way that banks can embed what they do so they can help serve their customers, potentially win more customers, provide more products.

So I think there needs to be a clear strategy for banks as to how they really drive a return on investment on the infrastructure they’re building.

There’s a really strong point of debate around this concept of consumer data rights, and I think that’s what this particular announcement really got to the heart of.

It’s some of the simple access that’s being charged for, and that’s where there are a number of very passionate industry players who say, this is a data right, you can’t charge for this.

Equally, there are a number of others saying there’s real infrastructure that’s being built.

The right answer is somewhere in between the two.

There is real infrastructure that’s being implemented.

There needs to be a clear strategy.

Personally, I don’t think in the long term that’s going to be from trying to heavily monetize really simple, basic data that in many places is a customer data right.

However, I think it shines a light on a really important debate within the industry, and I think we’re seeing that with the amount of passion that it’s generating.

Yeah.

And the pricing, that’s its own thing because some people will agree, oh yeah, a bank can charge for this.

But it’s the price that really matters.

I know I’ve seen a lot.

I don’t know the exact prices that Chase said it was going to charge, or the starting bid war, if you view it that way, like we’ll bring it down, that’s our starting point.

But that seems to be another argument of just like, oh, it’s too high.

It’s sort of like the overdraft fee argument.

A lot of people have come to realize, oh, some people do want overdraft, but it’s the amount that a bank is charging that’s onerous in a digital age.

So I sort of view it that way too.

But I love your point of, hey, maybe you don’t charge for getting the balance of the account.

But what’s some advice to a bank wanting to charge for something like this, but using your philosophy, or just your opinion, of you’ve got to tier this?

What’s the magic to the math, Huw?

Yeah.

I don’t think there’s necessarily a simple answer.

I also think there’s more to this than a straight transaction.

I don’t think it is a coincidence that this has happened as the CFPB has been going through a tumultuous series of changes.

The 1033 regulation that would have created a framework around this has been under attack and is potentially going to be rewritten and has been under legal challenge.

So I think the timing of this is not coincidental, for a start.

But I think as I look around the world, there are different ways that this is being done.

In a number of markets there is very clear regulation that says a certain level of data is a customer data right and must be made available.

We see that in markets like the U.K. and Australia, where consumer data right extends across a number of different industries.

You hear the same arguments, actually.

This has been a huge investment for the banks, and it’s tough, and you see the banks sort of fight the case a little bit.

What we are seeing in some markets is very deliberate attempts to create a commercial model that is intended to be balanced.

So in the UAE right now, open finance is being implemented, and at a central market level they’ve been defining what’s the right pricing model, so it can be proportionate, recognize there needs to be some value to the banks, but it’s also about making this scalable as an alternative to other card mechanisms.

I guess the one thing you see consistently around the world, and the political environment looks a little different in each country, and politics with a small p, but these things, for them to be sustainable, pricing needs to be proportionate.

So if, in a market-driven environment, pricing ends up being disproportionate and punitive to different parts of the ecosystem that impact customers, usually that’s the thing that triggers more regulatory intervention.

Regulations are normally around protection and forming guardrails, and also tackling imbalance within a marketplace.

So I think if banks, and I don’t know what the pricing looks like, I’m not sure that’s been publicized, but I think for any bank, if pricing seemed disproportionate, then it’s more likely to get the attention of the regulators.

I think the U.S. is sort of uniquely market-driven in the way open banking and open finance has developed over the years.

That’s helped achieve a huge-scale market.

There’s a standard that’s been developed by the industry through FDX, and that’s being widely and increasingly adopted.

There are some great aspects to the U.S. market.

I think there could be a risk, though, if monetization is done in the wrong way.

It could create bad market forces, and ultimately that usually leads to some sort of regulatory intervention.

But I don’t think there’s a coincidence around the timing of any of this.

I think it’s interesting timing.

It is interesting timing.

I’m also thinking another big controversy in the U.S. recently was Sydney Sweeney made an ad with American Eagle about jeans, and also interesting timing.

So yeah, when you announce something, it does matter when you do so.

And then, to your point of, oh, then the regulators will probably come back in, because now the CFPB is saying perhaps it will be revising the rule.

It’s just kind of a really wild ride that we’re on this year.

It has been.

It’s been such a soap opera.

I mean, it’s a rule that’s been under development for a long period of time.

Oh my gosh, so long.

Where it’s like, wow.

And it’s had so much industry consultation.

Now, I think of course there are always tweaks and improvements.

For me, it would feel a hugely retrograde step to go back to the drawing board.

It feels like that’s the direction of traffic, but there’s so much industry work done on this.

I think ultimately we’ve seen in other markets, creating clear frameworks, making sure there’s a common standard, that acts as a real catalyst for innovation and investment and all of those things.

So we’ll see how the soap opera plays out.

But it’s definitely been a soap opera.

Yeah.

And we didn’t even talk about this yet, but the crypto crowd is like, “Oh, it’s Operation Chokepoint 3.0,” or whatever.

So that’s just a whole other bag of chips.

But since you have such a wider perspective, I do want to drill into more of perhaps lessons learned from other countries, or things that perhaps slowed down.

Let’s start with the U.K., the open banking rollout, things that you would say, hey, maybe if you’re doing it now, avoid this.

Any clear lessons that you think would transcend geography?

It’s a great question.

I think we’ve seen with each market that’s implemented open banking or open finance in whatever form, there have been some really clear learnings that came through.

I think the U.K. did a really good job of creating a starting blueprint.

The thing the U.K. really got right was having a strong and well-defined API standard.

Because if every bank does this differently, it’s really hard to drive the value.

It’s like if every electrical manufacturer had a different design for a plug socket.

The world’s just much more inefficient.

I think in the U.K. we saw a really strong foundation of technical standards that allowed the implementation to be that much more successful.

In Europe, the same thing didn’t happen, and the whole rollout took an awful lot longer.

We’ve seen that in many other markets.

In the U.S., the Financial Data Exchange, FDX standards body, set out to do exactly that and has done a great job in creating a common standard.

I guess one of the big learnings in the U.K. was actually related to this point.

There wasn’t a clear set of incentives or value case for the banks.

It was actually initially positioned as a penalty by the competition regulator.

Now, I think what we have seen is there is a huge potential for these APIs to be a real business driver for the banks.

As I mentioned, whether it’s value-adding APIs or the ability to embed payments and other services in new ways, done well this should be a huge value driver for the banks.

But it started off in quite a confrontational way, being positioned as a competition intervention in the market.

The banks were forced to do it.

There were really important areas where the right conversation didn’t happen about a balanced commercial model.

The U.K. is now trying to catch up with that.

They’re looking at how do you create a commercial structure around open banking payments because that’s an area where there’s real cost, there’s real risk.

You need some form of commercial model.

If it’s not designed at scale and every single party is having to do individual negotiations, you’ll just never scale.

I think we’ve seen that in a number of markets.

As I look at the other markets that have gone since, we’ve seen markets focus on a few of the learnings.

One thing we’ve seen regulators be a lot more conscious of is, what are the positive reasons for doing this?

If you’re implementing open banking or open finance, why?

What’s the long-term vision?

How is it going to help tackle financial inclusion, drive investment, drive job creation, real GDP impact?

Then it gets designed in the right way.

So we’re seeing countries be much more thoughtful about that.

Standards continue to be at the heart of this.

For it to work, you have to have strong technical standards.

What we’re seeing increasingly, though, is much more of a focus on what are the different types of use cases and how do you create a balanced commercial model.

I mentioned the UAE.

They’re being very, very thoughtful and designing some of that into their outset.

In India, we saw their digital stack, which includes payments and data access.

Initially everything was driven without any cost, and it acts as a huge economic stimulus.

Now the industry is talking about how do you create the right pricing model around payment.

So I think the discussion in the U.S. is exactly the right one.

It’s just happening in quite a polarizing way because of the timing and the way it’s been introduced in the midst of all of the discussions around 1033.

But yeah, there are some really valuable learnings from around the world.

I don’t think there’s a perfect blueprint just yet.

There are lots of learnings from each market.

Yeah.

And it’s really helpful to hear some of what you’ve observed because I think it’s very instructive.

And yeah, it usually doesn’t work so well to lead with a negative, like, “You’re doing this because you’re a jerk.”

Doesn’t usually sell it.

But knowing that, and just thinking more, and also I should tell listeners and/or viewers that you worked at banks.

You’ve had that as a professional experience.

So I think that’s really interesting too.

Just knowing that, and to your point of there are revenue possibilities here, there’s likely innovation to develop that would lead to more revenue, new revenue sources in some ways.

But I guess let’s just talk a little bit more about that.

What could that look like, or what has that looked like elsewhere?

Yeah.

I’ve spent the largest part of my career working in some of the big global banks.

You know the red tape.

Yeah.

Exactly.

And I must say, when this whole shift toward an API-powered business model came along, at the time when PSD2 in Europe came along, I was still in HSBC, and I got really excited about it.

I thought this was the biggest change to the banking business model that had happened in my 30 years in the industry.

Because fundamentally it’s creating the ability to embed financial experiences in the right place at the right time for wherever the customer is.

Fundamentally, that’s the opportunity.

It isn’t purely about access to balances and transactions.

This is about a new business model for banks that means they can be anywhere.

If you just look at what Google has done with Google Maps, they’ve created an incredible platform, and because it can be embedded in any sort of third-party experience, it’s really pervasive.

That’s the opportunity for banks if they do this in the right way.

Now we’re working with a number of banks around the world who are, I mean, a lot of the banks are trying to work through what is the right commercialization model around their APIs.

The way I see it, I think there are some types of access that probably are going to be commoditized.

It’s either very low or no fee for it.

This might be things like basic balances and transactions.

As I said, sometimes that’s driven by regulation.

It’s a right to access that data.

In other places, I think where there is charging, it’s going to be a commoditized race to the bottom because the real value comes from more complex stuff.

So we’re starting to see banks look at how do they monetize more enriched information.

For example, helping their customer assert that they are who they say they are.

Perhaps that could be an age verification API, or an API that allows a customer to really easily onboard with a service through their bank saying, “Yeah, this is Huw, and this is his address,” and all of those things.

So we’re seeing some monetization around some of those areas, around identity attributes and enriched APIs.

A lot around payments, again, API-initiated payments, so you can embed a transaction journey anywhere.

We’re seeing a lot of pricing models develop there.

We’re also seeing there’s a whole load of APIs that banks can expose that, frankly, they’d probably never want to charge for because they’re creating a route to get to new customers and sell more products.

So if you’re a business bank and you’ve got great APIs that allow a customer to request a loan at the point that they need it, and you can get that embedded in an accounting platform, so the minute you see a cash flow crunch, you’ve got access to additional lending.

Actually, the benefit for the bank here is just growing customer relationships, not a charge that you’d earn from an API call.

So we’re seeing different business models.

Sometimes that’s going to be driven around, it might be charging per API call, or charging for different bundles of activity, or charging for a payment or a value of a payment.

I think we’ll see a lot of different models come out.

But we’re seeing banks start to really test and learn.

I don’t think anyone’s doing this at huge scale that’s transforming the banking business model yet.

But I think these are the foundations to transform the banking business model in the long term.

No, that’s really interesting.

And then you just got me thinking about how, yeah, there are banks and credit unions here that let customers link in their outside bank accounts too.

So they are also using this technology.

I think that’s been a sleepier point in this more recent debate.

Like, oh yeah, you actually use this too sometimes.

It’s interesting.

In a few markets we’ve seen, there’s often at the beginning a discussion around, is this going to increase switching?

Do the banks get worried if the data is available?

I think what we’ve seen in a number of markets is actually no.

People tend to stick with their main bank account.

Some of the biggest users of open banking access, and I think this is the same in many, many markets, are the banks.

The banks want to be able to get that broader view of a customer’s portfolio during a lending decision.

If you can view what’s happening in other accounts elsewhere, you get a much better view of the customer.

So actually, yeah, the banks are often some of the biggest users and biggest beneficiaries of this access.

All right.

Underscore, underscore, even though I’m drawing an exclamation mark.

So I want both.

And then I’m also curious because there is a lot of confusion in the States.

So if you had any recommendation to a bank or a credit union that’s like, what do I do now when there’s all this regulatory confusion or lack of instruction?

Do you have any advice there?

I know it’s a really big question, so take it whatever direction you want to.

Yeah, absolutely.

I guess an absolute statement of truth is that many, many consumers and businesses in the U.S. really like using some of these fintech and financial management apps.

So this isn’t a question of, when do I do this?

This is a real market right now.

Banks are either exposing really good APIs that are allowing a secure, structured way of accessing that data, or they’re being screen-scraped by third parties who are the customers giving them their credentials so the third party can connect as if they were the customer, which obviously is a little more concerning.

You want this to be based around really strong technical standards with very, very tightly defined consent around all of the access.

Frankly, these third-party services that rely on bank data to work, they’re highly, highly, highly used by millions and millions of citizens and businesses in the U.S.

So for banks, this isn’t an if.

This is happening.

This is real now.

I think the best way for a bank to control their destiny is actually have the technology that enables them to deliver really good APIs because then it’s secure.

There’s much more control around the consent, but also it’s that platform that they can then start to drive innovation and new and interesting business models.

This is what we do.

We built technology and a platform that helps banks really quickly implement the APIs in line with the right standard for wherever they are in the world.

So I think, very clear recommendation for banks, this is already happening at significant scale.

It’s much better to be ready.

The regulation, okay, what will happen with 1033?

That’s still got a little bit to play out.

But fundamentally, this is core infrastructure for how a bank needs to operate in the future.

There are, as I say, really interesting opportunities to create value and drive new revenue streams.

That’s a wonderful way, I think, to wrap up our conversation, except I’ll have one more question.

But before then, if a banker or a fintech company or a credit union wanted to reach out to you to just raid your brain and/or work with you, what’s the best way?

Well, you can find out more about us at OzoneAPI.com and connect with me on LinkedIn or find me by email.

So I’d be very happy to talk to anyone.

I think this is a fascinating debate at the moment.

It really is.

And Huw, last question.

What is the image on your phone’s lock screen?

Oh, well, it switches throughout the day.

At the moment, actually, I’ve just checked.

It’s my oldest son when we were on holiday.

But it flips around during the day between kids, dogs, family, all sorts of stuff.

It changes all the time.

I need to change mine where it flips a bunch.

Well, Huw, it’s been an absolute delight.

We’ve been in for a real treat to be able to quiz you about one of the hottest topics in banking and fintech right now with your wider experience.

So thank you so much for joining me today.

No, thanks for the opportunity, Mary.

It’s a pleasure.

If you enjoyed today’s Money Isn’t Everything episode, make sure to hit that follow button on Spotify, Apple Podcasts, YouTube, or wherever you’re listening.

I’ve got more riveting, interesting, funny conversations coming your way, and you won’t want to miss them.

Next up on the show is Sam Lewis, who is the founder of Fruitful, which offers a financial planning tool.

Catch you then.