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PaperclipPerfector  5d ago (text post)   2560 thread views

Small-Scale Question Sunday for August 17, 2025

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Why is so-called "Open Banking" a good thing for payments?

Almost all discussions of [Open Banking] 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.

If the merchant and I trust each other, I pay with check and we cut out the middleman; otherwise, the merchant gives me a 3% discount and I pay my bank between a third and negative two-thirds of that amount as an escrow fee. This seems like a perfectly cromulent setup, and it's not at all clear how "Open Banking" provides any compelling advantages on either side of that fork.

Plaid was asked [by Chase] for $300 million [in exchange for API-based direct debit access to Chase's customers]...

For customer-to-merchant transactions, "Open Banking" just seems to combine

  • All the downsides of plastic (potentially unlimited interchange fees, as Chase has reminded us)
  • All the downsides of Check/eCheck (no consumer protections for fraudulent transactions; permanent direct debit account numbers are revealed to a party that is not the customer, the customer's bank, or the customer's bank's contractors)
  • Further additional downsides (no precedent for competitive "rewards programs" to renegotiate the effective interchange fee back down; normalization of the use of sketchy as hell 3rd-party intermediaries like Plaid and Stripe, which all actually just screen-scrape most banks anyway.)

For customer-to-customer transactions, if the banks license out access to a mostly-standardized set of APIs to select partners like Venmo, Zelle, and Plaid, that doesn't seem compellingly different from the banks licensing out access to a proprietary set of APIs to select partners like Venmo, Zelle, and Plaid.

For customer-to-self-at-a-different-bank transactions, supposedly Gen Z is so mentally fried that a 3-day ACH transfer time will meaningfully impact conversion rates for new brokerage account sign-ups as they get bored/distracted and wander off; getting around that is the only remotely compelling payment use-case I can see in McKenzie's article.

What am I missing here?

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