Much of the operation of the financial industry is legible to people outside of it. Your credit card works basically like you understand it to (excepting the occasional mythmaking about second order consequences). Debates about what terms banks are allowed to offer on credit cards are fairly straightforward and can be easily followed by non-specialists.
But some issues are under the hood, and a societal debate about them doesn’t exactly wear its consequences on its sleeves. Consider the controversy over Section 1033 of the Dodd-Frank Act (and even that framing is an effective medication for insomnia).
In July, JPMorgan Chase announced its intention to charge fintechs for access to so-called Open Banking data. This comes amidst a consortium of banks trying to sue this hithertofore obscure regulation out of existence.
Almost all discussions of it center on “data”, but it’s actually a fight about payments, and whether banks have a right to monopolize and charge for all economic activity their users engage in, irrespective of whether the bank operates the payment method.
Cards on the table: I previously worked at, and am an advisor to, Stripe, a financial infrastructure company which facilitates customers’ use of both bank-sponsored (cards, etc) and competing (account-to-account, stablecoins, etc) payment methods. Stripe does not necessarily endorse what I say in my personal spaces. (I’m also a user and tiny shareholder of Chase. One presumes they also don’t endorse what I say in my personal spaces.)
The genesis of Section 1033
The Dodd-Frank Act was passed in the wake of the 2008 financial crisis. It included a combination of needed reforms and, effectively, partial negotiated settlements for the way in which banks had reaped enormous profits originating mortgages of less-than-stellar quality then left taxpayers holding the bag once those mortgages could not be repaid.
We’ve previously discussed one of the knuckle raps: banks had their debit card interchange capped, with an exemption for small banks. (Interchange is the fee card-accepting businesses pay to transact with bank customers.) The Durbin Amendment became a major pillar of fintech companies, as it established a revenue model for them. It also became something of a lifeline for smaller financial institutions, particularly those that partnered with fintechs.
Did banks like the interchange cap? No. It made a very lucrative line of business rather less lucrative. Taxpayers had provided about $245 billion in capital to backstop banks, and they (through the ordinary operation of a representative democracy) got a post-hoc concession for it.
The interchange cap was not the only concession in the Dodd-Frank Act. Section 1033 was another one: it is designed to increase competitiveness in financial services by establishing a presumption that banks must allow users to access their own data, including through competing providers.
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