Consumer-permissioned data is transforming financial services across virtually all industry segments and geographies.
Ryan Beaudry, SVP, Open Banking Product & Engineering at Mastercard, discusses the need and the vision to deliver both a trusted experience and a platform for innovation, empowering consumers to benefit from their data and powering financial services providers as they reimagine the money experience.
To learn more, visit https://www.finicity.com/open-banking. To request a demo, visit https://www.finicity.com/fintech-demo.
OPEN, EMBEDDED, MODULAR, AND ON A PLATFORM
The rapidly-evolving space of open banking, embedded finance, modular banking and banking as a platform is driving innovators with an API mindset, and the future will see more and more public-facing consumer brands embrace APIs across many industries.
A new report from Mastercard Data & Services looks at the relationship between BaaS and open banking, an aggregated approach to BaaS as it evolves into hosted marketplaces and ecosystems and how banks and fintechs can enable BaaS at scale.
Read the full report here.
Launched by J.P. Morgan Payments and Mastercard, Pay-by-Bank is an ACH payment that uses open banking, which enables consumers to permission their financial data to be shared seamlessly between trusted parties to let them pay bills directly from their bank account with greater security. No longer will they be faced with the tedium of typing in routing and account numbers each time they need to pay a bill. For billers and merchants, it automates consumer onboarding and reduces the risk and cost of storing bank account information.
Pay-by-Bank holds huge potential for billers to take the pain out of recurring payments such as rent, utilities, payments to government, tuition, insurance, and health care where ACH is the primary medium of payment.
Read more about this secure, streamlined open banking innovation here.
Once driven by early adopters like fintechs and tech enthusiasts, open banking is increasingly becoming embedded into the global financial landscape online and through apps from players across the ecosystem. And it is only expected to grow. From 2021 to 2026, the number of open banking users is expected to increase nearly eightfold. And instant payment flows enabled by open banking are expected to increase by 30 times.
Open banking allows for all boats to rise — including merchants, fintech innovators, large and small financial service providers and, most importantly, consumers and small businesses.
Jess Turner, Executive Vice President, Open Banking and API at Mastercard talks about the choice, innovation and inclusion in open banking that is lifting up opportunities across the entire ecosystem. Read here for more.
Jack Henry™ (Nasdaq: JKHY) announced an expansion of its existing relationship with Mastercard® that will enable credit unions and banks to provide their accountholders the ability to securely see all of their financial accounts – within and outside their primary financial institution – in one place. Together, the companies establish a partnership that makes secure, API-based data-gathering affordable for community and regional financial institutions.
Through this collaboration, financial institutions can offer their accountholders secure access to external providers and financial data — consolidating, categorizing and enriching that data in a simplified digital experience.
Read more about this expanded partnership here.
Getting a mortgage has traditionally been a long and challenging process. Customers have had to dig up paystubs and bank statements to hand off to loan officers. Loan officers and processors then manually uploaded the paperwork into the lender’s database for review and then hope for the best. When a borrower sent an incomplete document or a processor made an error in data transposition, it could delay the loan approval process by days, even weeks.
But in today’s climate of rising interest rates and low inventory, those long wait times have gone from just annoying to potentially costing house hunters the chance to close on the homes they desire. For example, serious buyers should arrive at each showing with a pre-approval letter in hand, in order to be competitive. Even those just browsing will need to move quickly if the right house comes up. And those refinancing—yes, even as rates are climbing, there are borrowers who could save by refinancing—must act fast to nail the lower rate in place.
These inefficiencies and delays were troubling to Guaranteed Rate, who, as the second-largest retail lender in the U.S., has been helping to make the mortgage process easier since 2000.
Two years ago the company decided to look into taking its underwriting process digital. There was a lot on the line. The mortgage industry sets a high bar for the financial data used to underwrite loans, requiring documents from verified institutions. What’s more, borrowers share some of their most sensitive financial information to secure a loan. Guaranteed Rate was committed to protecting the consumer’s privacy and financial data.
What Guaranteed Rate came up with is a platform that enables customers to go online or use a mobile app to grant permission for the lender via a third-party service to access their financial and payroll accounts. That lets the lender quickly and accurately verify assets, income and employment.
If everything checks out, the lender can give the borrower a quick thumbs-up. In some cases, that’s all the data the lender needs for the mortgage to go forward. This digital verification process can cut up to eight days off the underwriting process. “From an efficiency standpoint, our underwriters don’t have to manually verify income and assets for every loan, so we can scale up,” says Brad Lando, Senior Vice President of Strategic Development, Guaranteed Rate.
The company protects borrowers’ sensitive data by using Mastercard’s open banking platform. When a borrower grants a lender access to their data, Mastercard’s technology issues a token. The token allows the lender to see the data, but never house it. Nor does the lender receive login credentials. The risk of those credentials being hacked during the mortgage process is reduced, and the customer gets a better experience.
Another advantage is that borrowers can grant ongoing account access for prolonged periods of time, such as 60 days. That means the lender can refresh the data as needed without having to go back and ask for renewed permission to track down more documents, alleviating the burden on the consumer. “It’s cut down on risk, in addition to bringing a better customer experience,” says Lando.
Loan officers and processors have been quick to adapt to this digital-first method. The automated verification system allows them to sign off faster on more straightforward loans, which frees them up to focus on the more complicated ones.
And while there’s still some trepidation among consumers, they’re also starting to see the benefits. When offered a choice to manually upload their documents or grant permission for the lender to pull their information, 83% of borrowers who chose the digital path said their loan processing time was shorter than they expected it to be, or that it met their expectations.
As digital verification becomes more prevalent, the mortgage process will speed up, from application to close. And that means more people can look forward to a smoother process on the way to landing in the homes they want to live in.
Open banking can help build an economy that works for everyone. Data is at the heart of every financial experience, from lending to money management to payments and beyond. It can also help the under-banked or those with thin or no credit files by providing easier access to financial services.
New payment options have emerged as money has become increasingly a digital or data-driven experience, and they are only expected to become more popular in the coming years.
Jess Turner, Executive Vice President of Global Open Banking and API at Mastercard talks payment choice and optimized digital experiences at American Banker.
Consumers are embracing digital payments and turning to fintech for everyday finance needs. According to Mastercard’s 2022 Global New Payments Index, emerging payment methods like account-to-account payments, digital wallets and Buy Now, Pay Later are all on the rise. Eighty-five percent of consumers have used a digital payment method within the last year. And 93% are likely to use a digital payment method in the coming year.
Many of these emerging digital payments are powered by open banking and are a natural progression of the shifting landscape of payments. Through our latest research, we wanted to share five key trends to consider when integrating digital payments into your fintech innovation.
1. Consumers want convenience when paying bills
Consumers across the globe are relying on digital channels for paying bills because it is more convenient and makes it easier to manage finances.
Subscriptions, bills, utilities, loan repayment and retail payments are more convenient with open banking-powered apps and services. Eighty-one percent of consumers have already heard of account-to-account payments, but they may not know that open banking added speed and convenience to A2A, or that A2A payments can now be made at the point of sale, without typing in card details or writing checks.
2. Consumers seek flexibility in making payments
The majority of global consumers want the flexibility and control to optimize digital payments. Similar to the motivations around bill pay, consumers are connecting their accounts to automate repayment for BNPL and installment loans. Fifty-eight percent of consumers are open to connecting their bank account to other financial services to enable automatic repayments, and 52% percent say that they use digital repayment tools because they help to prevent missed or late payments.
3. Security is top of mind
Consumers recognize the convenience that digital payments offer, and security remains a top concern, highlighting an opportunity for providers to build trust. Building comfort with emerging digital payments is key to supporting future adoption as the two trend together. Faster transactions, convenience and transparency are the top reasons that help consumers overcome security concerns.
4. Consumers rely on fintech to manage finances
Consumers are relying on fintech, and indirectly open banking, to accomplish everyday financial tasks. Eighty-three percent of consumers have used digital tools for at least one financial task, and over half use technology to accomplish five or more tasks. The majority see making a payment as the most beneficial use case.
5. Emerging payments are strongest among Gen Z and Millennials
Younger generations have gone more digital in their purchasing and payments behavior globally and it’s anticipated that their use will continue to increase. These generations are less likely to make in-person purchases and payments: 50% for Gen Z compared to 78% of Boomers. They are also less likely to use cash for purchases. While security remains a concern for them, it is less heightened than for older audiences.
Building the Future of Payment Choice at Mastercard
At Mastercard, we have always powered experiences that enable customer choice. Our solutions are built to meet consumers’ financial needs and designed with security at the center.
In recent years, we have further differentiated Mastercard in the market by diversifying beyond the card. We’ve built a complementary open banking platform that enables ACH and account-based payments with best-in-class capabilities across infrastructure, applications and services. Empowering people to pay and get paid using a card, bank account, cryptocurrency, or even cash. Using any device or no device. In real-time or later, truly empowering people with flexibility and control.
Click here to download the full Global New Payments Index for a deep dive into emerging payment areas including digital payments, account-to-account, cryptocurrency, open banking and BNPL, among others.
Certain open banking solutions are provided by Finicity Corporation, a Mastercard company.
Digital financial experiences are becoming central to our lives. In a recent Mastercard poll, eight in 10 U.S. consumers reported using technology for financial tasks like paying bills, sending money to friends, checking or improving credit scores or applying for loans.
These are not mere conveniences, but tools that meaningfully impact people’s lives, providing them with more choice in financial services and more opportunities than ever before. Many of these innovations are made possible by open banking — technology that allows consumers and small businesses to permission their financial accounts’ data to the financial apps and services they want to use.
As digital payments continue to increase exponentially, so will the flow of financial data between parties. The massive increase in digital financial experiences is underway, according to Mastercard’s Rise of Open Banking report, 93% of US consumers currently using technology to manage their money. Security is more important than ever and, to ensure privacy, consumers want transparency and more control.
Mastercard improves security through open banking by driving new technology innovation while meeting governmental regulations and helping to establish industry standards.
Trusted financial data aggregation platforms, such as Mastercard’s open banking, facilitate secure access to consumers’ permissioned data via traditional connections and APIs. However, there are additional technological and regulatory measures at work that add more layers of protection to consumers and small businesses alike.
Here are some of the ways open banking keeps your customers’ financial data secure:
Tokenized Access
The industry is rapidly moving toward “tokenized” access. Also known as “Open Authorization” or “oAuth” connections, “tokenized” access involves providing an open banking platform with a “token” that is used as an access key rather than account credentials to access consumer-permissioned financial data.
Regulatory Movement
Across the globe, government regulations of consumer technology have emerged to protect people’s data from leaks, fraud or loss. For example, in the U.K. and Europe payment service providers must register with the Financial Conduct Authority to provide certain open banking services. Only registered providers can access consumer bank accounts, and they require explicit consent from consumers.
Meanwhile, new technological advances are accompanying Open Banking regulations to further protect consumers and provide clear boundaries for innovators. For instance, a crucial component of Europe’s PSD2 regulation is Strong Customer Authentication (SCA), a tool that guarantees user ID verification. As a stronger form of multi-factor authentication, SCA requires that customers share something they know (i.e. password or PIN), something they own (their mobile phone’s unique identity) and a biometric (facial profile or fingerprint). SCA will not authorize a payment without two of these three factors.
There are also regulations being worked on in other regions.
Industry-Driven Technology Standards
Establishing common industry standards around security will also help open banking to more clearly define access and sharing of financial data. In North America, a cross-section of banks, fintechs and financial services groups have come together to form Financial Data Exchange (FDX), a nonprofit aligned around a single data-sharing standard entitled FDX API. As an interoperable and royalty-free standard, the FDX API could accelerate the adoption of open banking API frameworks.
FDX adheres to five key principles for data sharing – control, access, transparency, traceability and security. Taken together, these five principles prescribe how consumers can be empowered and protected via data sharing by giving them a better view into what is happening with their data, who is accessing their data and what consumers are getting from their data.
Data Access
To protect the security of customers’ data, Mastercard, through its wholly owned subsidiary, Finicity, takes additional steps. In the United States, Mastercard has direct bilateral agreements for data access with most of the largest financial institutions. Our open banking platform is guided by our data responsibility principles.
When choosing an open banking platform for your fintech innovation needs, security is an important consideration.Our focus on building trust, stewarding data and driving choice have and will continue to drive how Mastercard looks to the future.
To learn more about open banking and how security is at the center of its design, download our whitepaper.
Mastercard today announced an expansion of its Engage partner network to include its open banking services, offering customers easy access to several technology partners that can quickly build and deploy open banking solutions for payments and lending decisioning at scale. According to Mastercard’s 2022 New Payment Index, 83% of consumers globally use digital tools for at least one financial task, and more than half use technology for five or more tasks. With the rapid adoption of open banking (i.e., consumer-permissioned data access) and digital tools across financial services experiences, Mastercard will work with technology partners to spur innovation through access to its open banking platform, from lending to payments to financial management.
“The partners joining Mastercard Engage are leading the deployment of open banking solutions that are designed with security at the center and will help to meet consumers’ financial needs and enable choice,” said Jess Turner, executive vice president, Global Open Banking and API at Mastercard. “Together we can enable innovation that will increase financial inclusion and expand access to digital services across the globe.”
Find out more about the initial partners and open banking solutions in the Engage program here.