Why PNC’s friction with Venmo is not likely to go away soon
PNC Bank has made it more difficult for its customers to use Venmo, and although competition plays a role, the bigger issue is the expanding risks financial institutions face when sharing data with third parties.
Venmo relies on data-aggregator Plaid to verify users’ bank accounts, and PNC recently changed its security protocols in response to rising threats, preventing Plaid from automatically accessing some PNC customers’ account data.
Consumers are now required to manually input their bank account data to enable Venmo, and verification typically takes a couple of days. Such friction is unwelcome when seamless digital payment processes are the norm, and it's triggered consumer complaints.
PNC doesn't want to alienate customers by making it harder for them to access Venmo, but their dilemma is one other banks are facing.
"We have no issue with Venmo or PayPal, but we're asking customers to take an additional security step by adding their bank account information manually when they sign up for Venmo because we're concerned about fraud resulting from third-party aggregators handing consumer account data," said Karen Larrimer, PNC's head of retail banking and chief customer officer, in an interview.
PNC in October made the move requiring Venmo and other third-party app users to manually input their bank account information, following an uptick in fraud that Larrimer said generally stemmed from third-party data aggregators. The bank ultimately wasn't liable for that fraud, but it's costly to intermediate, Larrimer said.
"Data aggregators scrape our customers' account data many times every day, and to protect users we want to ensure we're operating in a secure environment as we move toward open banking and data-sharing," Larrimer said.
PNC has signed secure data exchange agreements with several third-party data aggregators and it's in discussions with Plaid, according to Larrimer.
According to Plaid, PNC is an outlier with its policy requiring manual input of account data.
"We provide secure several other banks, from Wells Fargo and Bank of America to regional banks like First Commonwealth. We are ready to work with PNC and would like to be able to restore access quickly," a Plaid spokesperson said.
A spokesperson for Venmo parent PayPal said Venmo believes customer choice and the ability to seamlessly use Venmo is an important service.
The problem PNC has with Plaid automatically enrolling Venmo users may center on which customer details banks are exchanging with third parties and how the data is protected.
Finicity, a third-party data aggregator for banking apps, has data-sharing agreements in place with several large banks including Chase, Wells Fargo and U.S. Bank, said Steve Smith, the company's CEO. With each agreement, the goal is to obtain tokenized API-based access to customer information necessary to facilitate use cases including payments, credit decisioning and general fintech applications, Smith said.
PNC also said it wants all customer data it's exchanging with third parties to be tokenized.
"We're sticking with our policy of requiring manual input of account data until we're satisfied with data-aggregators' methods of handling this data," Larrimer said.
Other banks are grappling with similar issues.
“Banks are starting to get protective and they really don’t want to enable third parties to provide financial services without those entities also sharing their cost and risk,” said Tim Sloane, vice president of payments innovation at Mercator Advisory Group.
PNC likely is not alone in tightening security requirements for third-party apps seeking automatic connections to bank accounts, Sloane said.
“We think there are other banks besides PNC limiting Venmo,” he said, noting that more banks are concerned about potential losses from lax security with third-party apps seeking direct bank account access to help consumers manage spending, savings and investing.
PNC denied it's blocking automatic enrollment in Venmo to favor Zelle, the P2P app PNC participates in through the bank-owned Early Warning Services consortium.
That theory surfaced when PNC recently announced via Twitter that Venmo users experiencing difficulties should consider using the Zelle.
Larrimer explained the bank's suggestion to use Zelle instead of Venmo was one customer service representative's response that went public, not PNC's policy.
"PNC doesn't directly profit from our customers using Zelle; we only offer it as a convenience to customers," Larrimer said.
But analysts say banks could have various reasons for balking at creating seamless connections to third-party banking apps.
“Banks do not have an incentive to allow Venmo, and easing that process allows Venmo to develop more and more banking services without taking any—or at least much—of the risk,” Sloane said, noting that banks already are receiving complaints from Venmo users who want their money back from transactions gone awry.
Ultimately, banks must recognize the global push for open banking and data-sharing is inevitable and prepare to deliver what customers are asking for, said Ali Raza, a payments consultant and principal with Blue Leviathan.
“Consumers own their own data and should be able to do what they want and the role of PNC, and other banks, is to facilitate financial transactions,” Raza said.
Getting there may take some time.
Though PayPal’s Venmo P2P app is more popular than it is profitable, it’s a vital tool for its 40 million users, many who rely on social media to signal when they send or seek Venmo funds from friends and family members.
Venmo’s parent PayPal has consistently worked to enable Venmo users to make purchases directly at merchants through partnerships, and Venmo is figured to play a role in PayPal’s plan to “transform” the shopping experience through its recent $4 billion purchase of Honey, a popular online deal-search tool.
With the perception of rising security risks around third-party data-aggregators and encroaching fintechs, it stands to reason that more banks are likely to resist automatically yielding more digital wallet share to Venmo and other upstarts.
By thwarting Venmo users, PNC onboarding could see some erosion from Venmo loyalists who might go so far as to open an account at another bank to ensure seamless access to the P2P app.
But consumers’ P2P options are steadily expanding. Zelle has seen its transaction volume expand exponentially in the last two years, and the global growth of instant mobile cross-border payments has added many new P2P services for consumers inside and outside the U.S.
Even Venmo is finding alternative channels to direct bank connections. American Express in October announced a new feature enabling credit card customers to request funds from friends through Venmo by pinging contacts within the Amex mobile app. Amex users can customize the amount requested or divide the sum among members of a group.
As payments security, identity and authentication processes evolve, banks may grow more comfortable with enabling automatic connections between their customers’ bank accounts and third-party apps, but in the immediate future chokepoints may persist, depending on individual banks’ appetite for risk.
“With perfect identity and authentication and a major rewrite in liability law, we might be able to open up the system and let every consumer move money wherever they want to whomever they want, but today banks are the keeper of valid identities,” said Mercator's Sloane.