Who Controls the Future of Finance?

TA: How did APIs evolve from relatively niche developer tools into critical national financial infrastructure powering much of modern finance, connecting over 100 million accounts?

JP: I would say the main driver of that has been the competitive demand of consumers: “I want to use Venmo, I want to use Coinbase, Chime, and CashApp.” 

Ten years ago, the only way a consumer could make that connection was sharing their username and account password for their bank account. And everyone knew that was suboptimal. The core thing that everyone knew would be an improvement was shifting to API — the data is better, it's faster, it's more responsive, it's safer.

The challenge was that the company needs to build the API — generally the bank, but not always, where the consumer has their data. And there was a big question in the market: Are banks going to build APIs that allow their customers to get financial services from someone other than the bank? Who wins: the bank’s customer service interest or their competition interest?

What's been fascinating to see is the market has really split over this. The vast majority of banks said, “We want to do the right thing for our customer.” Our fastest API adoption has been with small community banks and credit unions — the ones that don't have billions of dollars to spend each year on digital financial services because they ultimately want the consumer to view them as a platform where, “I can use Venmo at this bank, I can use PayPal at this bank. I don't need to go to a JPMC or a Wells Fargo to get access to these apps.”

Some of the really big incumbent Wall Street banks have had a slightly different approach. They view APIs as more competition: “We would prefer to have all our billions of dollars of investment in digital recouped by customers only using us.” 

 And so while there's been a ton of progress in making this critical infrastructure, I think there's still this unanswered question in the market: Are APIs for the benefit of consumers, or are they a control mechanism to block competitors from the market?

TA: How big of a deal is the CFPB’s so-called “Open Banking” rule? (Finalized in October of last year, the rule requires financial institutions to share consumer data with other providers on request, with the goal of boosting competition and consumer control.)

JP: The jury is still out because some of the largest banks in the country, who would prefer the rule go away, have challenged it. So we'll have to see what the ultimate impact is. But to some degree, the rule is going to be a ratification of the technology, rather than a driver of it.

The reality is, open banking in the United States has already been wildly transformative. Just look at how many small financial institutions have been able to grow their customer base and manage digital transformation in a way they otherwise couldn’t have, or the incredible growth in the number of small fintech companies. While the regulation can increase or decrease those dynamics one way or another, the impact is downstream of that competition and choice.

TA: When the CFPB announced the open banking rule, one major bank warned it would usher in an “open season for fraud.” Is that a fair criticism? How do you respond to concerns from legacy institutions?

JP: Staying alert to the risk of consumer fraud always has to be a top priority. But I also think that statement is wildly misdirected and misinformed. This regulation isn’t creating a new level of data sharing or consumer choice, it’s ratifying what already exists in the market.

Right now, there are 12,000 financial institutions connected to 8,000 apps. Open banking has expanded beyond the typical fintechs to include traditional banks like Citi and commercial firms like Ford Motor Company and Tesla. I've been at Plaid for seven years, and the company has been around for over a decade. The ecosystem has generated billions of connections without this regulation and yet this fraud hasn’t manifested. You shouldn’t be cavalier, but fear-mongering claims about this regulation causing fraud are obtusely ahistorical.

TA: We’re already living in the open banking era, but some experts say there's still work to do. What are some of the key technical, legal and competitive hurdles that stand in the way, especially for smaller banks and credit unions?

John Pitts: I think the biggest hurdle is the sheer scale of the US ecosystem. The US has more than 10,000 financial institutions, and some of them are so small they don’t even have websites — they’re credit unions sitting in a church basement with a filing cabinet. There's no way a financial institution like that can digitize in the same way or at the same rate as an organization like JP Morgan Chase, which spends $15 billion a year on technology. In order to deliver real consumer choice and competition, you need something that works for every consumer, no matter where they bank. That's incredibly difficult.

TA: What are some of the disruptive forces reshaping financial services today? I realize that's very broad!

JP: It's broad because that's what's so exciting! You can't point to one disruptive force in financial services right now because there’s so many happening simultaneously. Anyone who claims they can tell you what financial services will look like 10 years from now is either a psychic or a liar, because there's so much happening all at once — which also means the prediction I’m about to make is highly risky. 

That said, faster payments, and instant payments, are incredibly exciting as transformative financial services tools. A huge amount of financial pain in people's lives is caused by mismatches in timing: You get paid every two weeks, or every month, but your expenses are daily. Eliminating the three-day lag between getting paid and when the money hits your account smooths out that financial curve for everyone.

Stablecoins are earlier in their development but have potential to do the same thing, but internationally. We still live in a world where, from a banking and financial services perspective, every country is walled off from each other. Channels exist, but they're really narrow, specific and often very high friction for consumers.

The last point, as I mentioned earlier, is that the radical transformation in how people access credit is an undervalued market change. We’re still operating on a system that began with credit reporting agencies contacting merchants and writing down in a book whether Jim or Pam were good for the store credit they took out in the 1860s. Today’s technology is just a fancier version of that.

That’s radically different from a consumer being able to take their full financial life, shop it around to lenders themselves and say, "This is my qualification for the loan — will you give it to me or not?" It's a significant shift in who's in control, who has the power, and that change in dynamic will be deeply impactful for consumers. 

TA: Industries left and right are being upended by GenAI — not to mention agentic AI, which will be capable of executing transactions autonomously and may be around within the next five years. What impact is GenAI having in financial services today, and what does the future look like?

JP: It’s having limited impact today but has real potential. Right now, GenAI is largely being used internally at companies to make them more efficient, rather than directly helping consumers manage their finances. The future opportunity, though, is huge.

When it comes to financial management, there’s a bottom 50% of people who are financially capable. The reality in the US market, and many others, is that good financial advice is very expensive. Largely in the US, you’ll get a high school course on financial literacy, but not much else. Then you’re thrown into the market to fend for yourself.

Agentic AI, as a tool that consumers control, has immense promise to bring the average up across the board. Imagine if the bottom 50th percentile were as good at managing their money as the median consumer. That's a huge improvement in human welfare and wellbeing that agentic AI can unlock — but only if consumers are able to share all their financial data, which is where open banking becomes a huge enabler of agentic AI’s promise for consumer finance.

TA: What's one belief about financial innovation you think a lot of people get completely wrong? 

JP: People assume financial innovators are like the stereotypical tech companies of the early 2000s who “move fast and break things.” I’ve never once met a financial services innovator who has any interest in breaking a single thing when it comes to a consumer's money.

TA: Any parting thoughts?

JP: We’ve seen other parts of the economy digitized unevenly, and there's been a lot of pushback because that has created winners and losers in a way that makes people uncomfortable.

Getting digitization and financial services right so the smallest credit union or community bank has as good a chance of winning customers and serving them for the next 100 years as behemoths like JPMC is the fundamental question for the next five years.

This interview has been edited for length and clarity.