JPMorgan Chase (NYSE:JPM) just took the lead on a critically important front in a way that's almost inevitably bound to revolutionize the bank industry. On Wednesday, the bank announced a partnership with Intuit (NASDAQ:INTU), the maker of Turbo Tax, QuickBooks, and Mint, that will allow the technology firm to pull bank account and transaction data directly from Chase customer accounts.
"The companies will use technology that will allow customers to authorize Chase to electronically share financial data securely with Intuit's financial management applications," the companies noted in a joint press release. "This agreement sets the bar for how banks and technology companies can work together to serve their shared customers."
Problems with the status quo
Intuit's products have long relied on the ability to pull data from its customers' banking and credit card accounts to display in its applications. Its popular Mint app, for instance, aggregates a person's financial data into one place, making it easier for them to know where they stand financially at any particular point in time.
Up until now, a customer had to give Intuit their user names and passwords for all of the accounts they wanted to be aggregated into Mint. The application would then intermittently sign into the users' accounts and essentially copy the data from the screen and paste it into Mint.
This method is problematic for multiple reasons. First, it's less secure, as it requires users to disclose their user names and passwords. Second, it's less accurate, as so-called screen-scraping leads to errors in the data. And third, because applications like Mint sign into customers' accounts frequently, they tend to strain bank servers.
The issue was so significant to JPMorgan Chase, that its CEO Jamie Dimon addressed it in his 2015 letter to shareholders. "One item that I think warrants special attention is when our customers want to allow outside parties to have access to their bank accounts and their bank account information," he wrote. "Our customers have done this with payment companies, aggregators, financial planners and others. We want to be helpful, but we have a responsibility to each of our customers, and we are extremely concerned."
Dimon went on to note that: "When we all readily click 'I agree' online or on our mobile devices, allowing third party access to our bank accounts and financial information, it is fairly clear that most of us have no idea what we are agreeing to or how that information might be used by a third party."
Application programming interfaces
Because products like Mint and Turbo Tax aren't going away, it led banks to rethink how they shared data with these third-party aggregators. And the method they've begun to settle on, as evidenced by JPMorgan Chase's new partnership with Intuit, is through the use of application programming interfaces, or APIs. These give applications like Mint direct access to customer data, eliminating the cumbersome approach of logging into customer accounts and scraping the data.
This may not seem revolutionary, but it most certainly is. It puts a third-party intermediary between a customer and his or her bank. As more and more banks adopt this approach, it isn't hard to envision a future when all of your banking is conducted through a single third-party application, as opposed to through multiple banking and credit card apps corresponding to each of your separate accounts. This could not only erode the importance of branding in the bank industry, but it could also limit the opportunities for banks to cross-sell their customers additional products, such as mortgages and car loans.
Now, to be clear, there are benefits as well. After all, if JPMorgan Chase were to fight the trend, it could be left in the dust by banks that embrace it. Moreover, by being an early mover on this front, the New York-based bank could increase customer satisfaction by making it easier for them to holistically manage their finances.
All things considered, the movement in this direction was inevitable. What remains to be seen is whether the benefits will ultimately outweigh the risks to the banks that follow JPMorgan Chase's lead.