JPMorgan Chase made waves this week when it announced a partnership with data aggregator Plaid. The move will allow Chase customers more visibility into — and control over — their data.

In one sense the move comes as no surprise. CEO Jamie Dimon has long been a critic of apps that ask for banking credentials in order to scrape data from the account, while APIs, properly configured, offer greater safety. Banks (and the FDIC) are, after all, on the hook when accounts are compromised.

But in another sense, the move is shocking, as it is whenever a bank signs a deal with an innovative fintech player, as opposed to a tried-and-true traditional vendor.

“Not that many banks partner with fintech companies,” said Mike Whalen, a partner in the law firm Goodwin Procter LLP’s technology group and co-leader of the firm’s fintech practice. “There are half a dozen or so usual suspects. There’s a lot more supply than demand, so banks are just really picky because they can be. Working with a fintech, it’s a lot of risk to be comfortable with.”

That’s not to say banks don’t want to do it in theory. Whalen described a summit his firm held with 75 banks about such partnerships: “And you have 75 banks in the room nodding, but they won’t do it.” Fintech companies typically offer quite specific solutions, and the chances are small that a bank they approach has that need and that capability and is willing to put aside other IT projects in order to make it happen.

Dharmesh Mistry, chief technical officer at Temenos, noted that banks try and do everything themselves. “But it’s not possible to be best-in-breed for the hundreds of products they offer.” He added, “Banks don’t need to be technology companies, but they need to understand how to take advantage of those companies.”

In most other industries, Mistry observed, manufacturing and distribution have split, but not in banking. Open banking, which allows banks to open up to partnerships with dozens of apps via API, splits these two and opens up new distribution channels. The newer banks, such as N26 and Fidor, represent the consolidation of manufacturing, he said, as well as an openness to new distribution channels, or new customer experiences.

Kevin Grieve, the North American lead for payments at Accenture, told Bank Innovation, “Fintechs have to collaborate with incumbents. Incumbents have to be able to integrate fintech. But it’s not very easy. Banks have multiple ways to address the fintech market. There’s the venture market, hedging against the rise of a unicorn. There’s partnering. And there’s acquiring, and building solutions with innovators.”

But there are sound reasons fintechs may not be attractive to banks. “Fintech is more tech than fin,” he said, speaking of payments and lending companies. “These guys have never made it through a credit cycle. They haven’t made it through regulatory reviews.” Also, they offer a narrow solution while banks have to cover the entire value chain.

But Whalen from Goodwin Procter says today’s fintech startups are “compliance-minded. Five years ago it was different, they had no idea. Today, they come in prepared.” The first thing banks ask potential partners, Whalen said, is, “Who’s your chief compliance officer? And you better have someone solid there with the right experience. And then, who’s your legal representation?”

The Challenge of Charters
These difficulties explain why bank charters are attractive to some fintechs, but these charters have capital requirements, and compliance demands beyond what many small startups can possibly offer.

But Jason Gardner, CEO of the payments platform Marqeta, is bullish on the rise of fintechs. The regulations banks complain about, he said, are actually protections against the unbundling happening around the industry. Banks can’t possibly compete with the specialization offered by companies such as Square, Kabbage, Affirm, and Chime.

Chime is seeing great success, reporting some two million customers. But Chime works with The Bancorp.

The regulatory landscape is changing, and that may make it easier for fintechs to compete, and also easier for banks to partner with attractive companies.

“There’s competition among regulators,” Whalen said. “Innovation is born out of competing charters.” As an example, he noted that the FDIC recently noted it is open to granting more charters — a rarity since the credit crisis. (It is also opening an innovation office to help banks adapt to the changing landscape.) “This wouldn’t have happened without the OCC’s fintech charter. This competition is good for innovation. It’s going to be good for the industry.”