{"id":31394,"date":"2026-07-21T05:45:39","date_gmt":"2026-07-21T10:45:39","guid":{"rendered":"https:\/\/reformingretail.com\/?p=31394"},"modified":"2026-07-21T05:45:41","modified_gmt":"2026-07-21T10:45:41","slug":"us-banking-oligopoly-keeps-pay-by-bank-unreasonably-expensive","status":"publish","type":"post","link":"https:\/\/reformingretail.com\/index.php\/2026\/07\/21\/us-banking-oligopoly-keeps-pay-by-bank-unreasonably-expensive\/","title":{"rendered":"US Banking Oligopoly Keeps Pay by Bank Unreasonably Expensive"},"content":{"rendered":"\n

At the point in the technology adoption lifecycle you’ve undoubtedly found yourself in a situation to pay by bank.<\/p>\n\n\n\n

Likely online, but still.<\/p>\n\n\n\n

And, if you’re a US resident, you’ve likely seen bank connections powered by Plaid.<\/p>\n\n\n\n

It probably looks like this:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Now, if you select the first option, the experience is quite nice: you log into your bank account using your bank credentials, likely receive a 2FA code to prove you’re you, select the bank account you’d like to use for payment, and you’re done.<\/p>\n\n\n\n

The second option is a bit more clunky: you’d need to find your account number and routing number and copy-paste it into the interface.<\/p>\n\n\n\n

Definitely a non-zero chance of screwing something up, which would delay your purchase time and, as a consequence, any good or service you’re looking to acquire.<\/p>\n\n\n\n

Plaid, as a connector, isn’t free.<\/p>\n\n\n\n

It’s actually quite expensive.<\/p>\n\n\n\n

Some of that comes from Plaid being absolutely pummeled as the first company to force interoperability on banks, i.e. Plaid hijacked their way into bank integration AROUND the banks themselves in the early days and wound up eating a $58M settlement as a consequence<\/a>. <\/p>\n\n\n\n

Let’s explain a bit more as background.<\/p>\n\n\n\n

When a customer uses a software the data generated almost always belongs to the customer.<\/p>\n\n\n\n

For example, your bank balances, etc are YOUR data.<\/p>\n\n\n\n

Reasonble, right?<\/p>\n\n\n\n

Well, sometimes the platforms see an opportunity to make a bunch of free money.<\/p>\n\n\n\n

And they gate-keep to prevent interoperability.<\/p>\n\n\n\n

Banks were doing just this: making it impossible for their own customers to move their data outside the bank.<\/p>\n\n\n\n

But it turns out you kinda need access to your own bank data to, you know, do things like pay by bank.<\/p>\n\n\n\n

Plaid stepped in to solve this programmatically, even if the banks didn’t have APIs available.<\/p>\n\n\n\n

So while Europe was mandating open banking (ie forcing lazy, greedy banks to build APIs and modernize 60-year old technology that they frankly had a duty to be doing) US banks were sitting on their hands.<\/p>\n\n\n\n

The European open banking law PSD2, specifically XS2A<\/a> which governs access to accounts, makes very clear that account access, balance checks, and standard credit payments are to remain free. There are obviously nuances to payments so an updated version of the law (PSD3) is expected any day now, and that will specify fees for other use cases, but the activity we’re covering in this article has been legislated to be free.<\/p>\n\n\n\n

Now, we are staunch free market folks, and so the government shouldn’t have to be involved to dictate obvious things.<\/p>\n\n\n\n

Is there a cost to develop a banking API that enables customers to access their data?<\/p>\n\n\n\n

Sure.<\/p>\n\n\n\n

What’s that cost?<\/p>\n\n\n\n

A few hundred dollars per year.<\/p>\n\n\n\n

IF you were a responsible operator and cleaned up your technical debt.<\/p>\n\n\n\n

Here’s an example. <\/p>\n\n\n\n

Brazil spends ~$1M USD annually<\/a> to run PIX, their national free bank-to-bank transfer system. <\/p>\n\n\n\n

(And this a public market system… a lean startup could probably manage PIX for $100,000.)<\/p>\n\n\n\n

But let’s stay with the $1M number.<\/p>\n\n\n\n

In 2025 PIX was handling nearly 100B transactions a year.<\/p>\n\n\n\n

If we math that math, a PIX transaction costs $0.00001.<\/h4>\n\n\n\n

Now let’s move to the US.<\/p>\n\n\n\n

In the US, banks can charge data pipes like Plaid whatever they want.<\/p>\n\n\n\n

JP Morgan, for example, charges $1 for account access<\/a>.<\/p>\n\n\n\n

Doesn’t sound like much, but the PIX math should show you that JPM is marking up the costs 100,000x.<\/h4>\n\n\n\n

Not a typo.<\/p>\n\n\n\n

Want access to your own data?<\/p>\n\n\n\n

JPM thinks they are deserving of a 100,000x markup.<\/p>\n\n\n\n

We can’t even fathom another line of business has this type of margin.<\/p>\n\n\n\n

This level of margin can only exist in a monopoly market.<\/strong><\/p>\n\n\n\n

Period.<\/p>\n\n\n\n

Find us an example otherwise.<\/p>\n\n\n\n

If your answer was ACH…<\/p>\n\n\n\n

You’d also be correct: ACH core processing costs $0.0035 per transaction<\/a>. <\/p>\n\n\n\n

Banks often charge $3, representing a nice, “fair” 85,614.29% increase.<\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Hmm, wonder if there’s a trend here…<\/p>\n\n\n\n

BUT.<\/p>\n\n\n\n

Here’s the banks’ argument.<\/p>\n\n\n\n

When PSD2 passed in Europe, it was estimated that European banks spent $20B modernizing their infrastructure<\/a> to enable APIs.<\/p>\n\n\n\n

… because banks couldn’t be bothered to fix their tech debt for the past 50 years.<\/p>\n\n\n\n

The cost is a non-trivial cost, we’re not debating that.<\/p>\n\n\n\n

What we are debating is that banks put themselves in this position because they never bothered to modernize.<\/p>\n\n\n\n

Always kicking the can down the road.<\/p>\n\n\n\n

You’re living in 2026. <\/p>\n\n\n\n

Maybe it’s time to upgrade from COBOL?<\/p>\n\n\n\n

Technical debt is a part of business operations. If you don’t like it, don’t get in that line of business.<\/p>\n\n\n\n

And here’s where this gets to be problematic.<\/p>\n\n\n\n

Whenever you use a card to buy something – at least in the US – there’s an unreasonable 3% tax to move that money.<\/p>\n\n\n\n

Rewards.<\/p>\n\n\n\n

Scheme fees.<\/p>\n\n\n\n

Acquirer markup.<\/p>\n\n\n\n

Whatever.<\/p>\n\n\n\n

When the banks charge absurd markups on bank payments they are de facto forcing merchants to use cards, where banks and the oligarchs feeding from the trough make even more money.<\/p>\n\n\n\n

Let us show you an example.<\/p>\n\n\n\n

JPM’s $1 fee means that unless your transaction exceeds $33.33, a card is cheaper.<\/p>\n\n\n\n

And that’s just JPM’s fee.<\/p>\n\n\n\n

Then you have Plaid’s connectivity fee, and the raw cost of ACH (albeit trivial).<\/p>\n\n\n\n

In reality, for a transaction under $50, pay by bank is simply economically untenable.<\/p>\n\n\n\n

Not because the true costs make it so, but because the fat, greedy oligarchs never wanted to modernize and believe society should have pity on them.<\/p>\n\n\n\n

The US has tried to curtail some of the greed legislatively, but the banking lobby is too powerful.<\/p>\n\n\n\n

The US CFPB finalized it’s Personal Financial Data Rights Rule under Section 1033 of the Dodd-Frank Act which required that financial institutions open up their APIs, and do so at no cost to consumers.<\/p>\n\n\n\n

Well, that was late 2024, and there was an administration change that put things on pause. Currently the item is under further review, but how long it takes is anyone’s guess.<\/p>\n\n\n\n

BTW, we’re not espousing that the federal government should<\/em> mandate that banks perform their reasonable duties of keeping their systems updated with modern times.<\/p>\n\n\n\n

That’s a job for the free market. <\/strong><\/p>\n\n\n\n

But we are saying is that the entire situation has made pay-by-bank untenable, especially since 75% of US transactions are estimated to be less than $50<\/a>.<\/p>\n\n\n\n

And it is very highly convenient for the banking oligarchs.<\/p>\n\n\n\n

That free market solution?<\/p>\n\n\n\n

A multi-tiered pricing structure that merchants could programmatically implement based upon the customer’s bank.<\/strong><\/p>\n\n\n\n

For example, given an item price of $100, the end-customer costs might break down as follows:<\/p>\n\n\n\n