Every day, to a larger and larger portion of consumers, the pre-digital era of account opening becomes smaller in the rearview mirror. Among the growing millennial and Generation Z consumer demographics, the idea of visiting a physical location to open a financial service account might almost sound vintage.
But just how many consumers are we talking about? To find out more about what’s driving people to establish and maintain the financial foundations of their day-to-day digital lives, Finicity teamed up with PYMNTS to publish Account Opening and Loan Servicing in the Digital Environment.
Drawn from a survey of over 2,300 U.S. consumers in December 2021, this report illustrates the rising number of consumers opening accounts digitally, their levels of comfort in managing their finances on a screen and the distinct role that digital plays between account types.
Account Opening
The numbers show that consumers are rapidly adopting online banking services in lieu of taking trips to brick-and-mortar branches. About 151 million adults in the U.S. opened a new financial account in the past 12 months, and more than three-quarters of them did so digitally.
Banking has gone mobile in a big way as well. More consumers than ever are opting to bank from anywhere: according to prior PYMNTS research, 69% of all consumers opt to bank from their couch, the sidewalk, restaurants—wherever they feel like it—with their financial institutions’ mobile applications. Within the past year, 76% of all new financial accounts were opened via digital means.
Additionally, almost eight-in-ten Gen-Z consumers reported feeling “very” or “extremely” comfortable opening a financial account with a mobile app. That’s an entire generational cohort for whom mobile banking is simply the norm.
A significant portion of consumers—36%—said that they believed opening an account digitally was more secure than through traditional means, and younger cohorts were most likely to say that they felt more secure providing financial data such as proof of income and employment via open-banking channels.
Loan Servicing
Loan servicing is going digital as well. Most consumers have at least one outstanding loan account open, and most of them also manage those loans digitally whether on a desktop or mobile environment.
A large generational divide exists in our data regarding loan management—older consumers form a larger portion of those with loans to manage, and older consumers also express less comfort with digital finances overall. Concerns with data security are the top reason consumers gave as to why they wouldn’t elect to manage a loan digitally.
On the flip side, the portion of consumers who are “more” or “much more” likely to use a digital financial account to manage loans grew 54% over the past two years, and consumers indicate that they feel much more comfortable with the idea of opening a new account online.
Consumers also indicate an interest in one of the main benefits of open banking—convenience. Half of consumers say that they’d be more likely to open a new account if the required financial information—income and employment verification, for example—were automatically transferred as part of the process. Verification takes time and labor, and open finance solutions allow both consumers and lenders to skip mountains of paperwork at account opening.
Learn More
That’s just the tip of the iceberg. It’s been clear for a long time that the future of financial management is digital. PYMNTS and Finicity have brought you the data showing just how quickly things are accelerating in the space. To learn more, download Account Opening and Loan Servicing in the Digital Environment today.
Finicity, a Mastercard company, and Fiserv, Inc., both leaders in open banking technology, are advancing the future of open finance through secure data sharing. A data access agreement between the companies will allow thousands of Fiserv financial institution clients to enable consumers to provide clear and explicit permission to securely share their account information with apps that use Finicity’s open banking platform.
“This data access agreement complements Mastercard’s longstanding partnership with Fiserv, demonstrated by our aligned missions to empower consumers and organizations to permission the use of their financial data for their benefit,” said Ryan Christiansen, SVP, Data Access Partnerships at Mastercard. “The strong payments connectivity between Mastercard and Fiserv via tokenization, traditional processing and beyond extends across infrastructure, applications and services to the secure and highly reliable API connections we’re enabling through open banking.”
Finicity is a leader in signed data access agreements. Through this partnership with Fiserv, a major core banking solution provider, Mastercard connectivity continues to outpace competitors and further diminishes credential use within the ecosystem.
Read more here.
Mastercard is launching a new suite of Smart Payment Decisioning Tools to reduce risk in ACH payments and optimize cost and speed through open banking.
Merchants can now use advanced data analytics and machine learning to make the payment experience safer and smarter for everyone. Mastercard is launching two new Smart Payment Decisioning Tools, Payment Success Indicator and Payment Routing Optimizer, part of Finicity’s open banking suite of services that enables payments and account creation seamlessly and securely.
Read more about this new solution here.
Bob Schukai, Mastercard’s Executive Vice President of Technology Development, New Digital Infrastructure & Fintech, lays out the Mastercard philosophy around the protection of consumer data:
“Strong connectivity is important; however we also know that handling people’s data is an enormous responsibility. We have an obligation to keep our customers’ data secure and we set out four simple principles for the use of data. Consumers own the data they produce every day — and have the right to understand and control how it is shared and used. Ultimately, consumer data should be used to make their lives easier.
If you are building a fintech that is innovating with consumer data, it’s critical to clearly outline a set of privacy standards and data management practices up front. Protect that data using an appropriate set of privacy-enhancing technologies to back your claims. Treat the data of your users as if it was your own.”
Read more here, as Bob drills down into the data principles that guide Mastercard.
The payment landscape continues to shift. The move from cash and checks to digital payments such as ACH (automated clearing house) has accelerated, particularly in high-dollar or recurring categories like rent and utilities. These moves offer benefits for both consumers and merchants – more choice, simpler experiences and greater speed to payment – but they come with a few challenges.
Unsuccessful transactions create friction in the experience by leaving parties scrambling to find a different way to get a payment through, or it can generate penalty fees for both merchants and consumers. There is always the risk of fraudulent accounts or account credentials being used.
To improve the process, Mastercard today unveiled a new suite of Smart Payment Decisioning Tools that minimize these pain points.
The new products – Payment Success Indicator and Payment Routing Optimizer – rely on real-time bank data permissioned by a consumer to show payment indicators that raise successful payment completion rates and reduce transaction costs.
When it comes to ACH transactions, Nacha reported that payment volume on the modern ACH Network increased 7.7% in the third quarter of 2021 alone, showing that consumers are becoming increasingly interested in making direct payments from their bank accounts.
With the increasing volume of ACH payments, there are a few hurdles that may potentially slow the increase in adoption, delaying the improved merchant and consumer experience:
- Settlement risk – Lack of payments visibility leaves merchants exposed to the potential for returns, which disrupt and add friction to a consumer-merchant relationship. When a customer ‘walks away’ from a payment experience, the merchant is unsure of the likelihood of ACH settlement. This has the potential to create a costly return process with added fees and manual intervention or operational costs.
- Security – On occasion, merchants experience failed payments due to a consumer providing false or inaccurate credentials.
- Payment decisioning – Having multiple ACH payment options, such as the payment rail and settlement date, provides consumer choice and minimizes expense. However, lack of greater visibility can introduce risk to settlement.
Minimizing Payment Failure, Maximizing Cash Flow.
How do these pain points play out in the market? According to Mastercard research, each time an ACH payment fails, the merchant is hit with a fee. Fraud also continues to be a major issue in payments. According to a 2021 AFP Payments Fraud Survey, checks and wire transfers are by far the preferred methods that fraudsters exploit, but ACH debits have seen an increase in fraudulent activity as well.
Enter the power of open banking. By using consumer-permissioned data, these hurdles can be lowered or even eliminated.
With Payment Success Indicator, failure risk is mitigated by scoring the likelihood of a successful payment before initiating it. Then with Payment Routing Optimizer, originators are given a recommendation for the most optimal day and payment rail to choose for the highest likelihood of successful settlement at the best cost and speed.
Better Data, Better Decisions.
With smart data comes better decision-making. This is true in virtually every aspect of life, and it’s true in handling account-to-account payments. Leveraging machine learning and predictive modeling, Payment Success Indicator and Payment Routing Optimizer can help mitigate or eliminate ACH failure. This can increase cash flow and improve the bottom line while also creating a more positive experience for customers.
Consumers are adopting more apps and services that utilize digital checkout and payment options. It’s more important than ever to minimize fees and their associated costs, reduce fraud, non-sufficient funds (NSF) returns and make payment settlement confident and cost-effective.
By utilizing consumer-permissioned bank insights, Payment Success Indicator will provide payment originators a composite score across 10 future calendar days, as well as an individual score for each of those 10 days. Scoring is based on real-time balance and historical behavioral risk patterns. This system is used to evaluate the likelihood a given amount will settle successfully.
If there is a high risk of settlement or non-sufficient funds over the given time period, the merchant can then use that information and request an alternative payment method, deny the transaction or assume the risk and proceed.
The analytics engine returns a score separating the risk factors across four tiers, giving merchants the advantage of maximizing the available data before making the decision to initiate a payment:
- Tier 1: Highly likely to settle.
- Tier 2: Likely to settle.
- Tier 3: Less likely to settle.
- Tier 4: Do not process. Errors present.
Each composite score comes complete with weighted reasons accompanying it. Account balance, NSF history, consumer spending and consumer deposits are all factored into the analytics.
Payment Routing Optimizer will make payment rail, cost and payment date suggestions, based on the risk findings by Payment Success Indicator.
For example, if the balance is available in a consumer’s account to make the payment today, but the analytics determine that it may not be available over the next few days, Payment Routing Optimizer will suggest Same-Day ACH over risking Standard ACH processing.
This product aims to take the friction out of choosing between digital payment options with future updates of the Payment Routing Optimizer potentially including a debit card option.
Real-World Benefits.
The Bilt Rewards Alliance, a collection of more than 2 million rental homes across the country that lets renters earn highly valuable rewards points just by paying rent, will be the first fintech partner to launch Payment Success Indicator.
“Our mission is to help renters get the most value out of one of their biggest expenses, and returned payments create significant expense and friction for both residents and landlords,” says Ankur Jain, Founder and CEO of Bilt Rewards. “Payment Success Indicator should significantly reduce the potential for returned payments, delivering a digital payment experience that works harder and smarter for everyone.”
Through smart decisioning analytics, Mastercard is helping financial services innovators and payment platforms change the ACH payments landscape. Increased confidence, minimization of fees, improved profitability and simplified payments. That’s the power of open banking.
Click here to contact your sales representative for more information on our Smart Payment Decisioning Tools.
Bob Schukai, EVP, Technology Development, New Digital Infrastructure & Fintech at Mastercard and others weigh in on what technological and philosophical advances can be made to make open banking even more effective, inclusive and innovative.
Read more here.
The U.S. lags other countries in open banking, the practice of enabling the sharing of customer account information between banks and third-party service providers. A White House executive order issued last July may give it a domestic push.
In the ongoing discussion, the consumer benefit of account-data portability and control runs up against competitive considerations among financial institutions, new-breed fintechs and data aggregators.
Read the full article here.
Consumers don’t want to go to a branch or to be limited by business hours for a call center to transact and manage their money. Digital channels are offering them the possibility to manage their accounts anytime, anywhere.
This has been confirmed by research conducted by PYMNTS and Finicity, a Mastercard company, which found that more than three-quarters of those who opened a new financial account in the last year used digital channels to do so.
Lisa Kimball, SVP for Open Banking at Finicity, talks with PYMNTS about the acceleration of digital banking adoption.
Watch the video interview here.
Fintech services powered by open banking data are gaining adoption across the banking and financial services industry. Consumers are looking to save time and money and improve their financial health.
Recent industry survey data show us just how comfortable and willing consumers are to utilize technology to manage their finances. These insights also provide some clear indicators into what open banking and fintech will look like in the year ahead. Andy Sheehan, president and COO of Finicity, a Mastercard company, gives a preview of the open banking landscape for 2022.
Read the full article here.
From baby boomers to Gen Z, each successive generation is more comfortable with using technology tools to manage every aspect of their daily lives. Gen Z (born 1997-2012) only knows a world that’s almost completely digital. It’s no surprise then, to find out that Mastercard’s Rise of Open Banking study showed that they were the most willing and eager to adopt cutting-edge fintech apps and services before older generations. Given that millennials have recently surpassed baby boomers as the most populous generation in the U.S. and Canada, sensitivity to their financial needs and desires is critical for fintech developers and entrepreneurs, as well as banking sector incumbents.
When asked about why you would use technology to manage finances, convenience is the top driver. The desire to try something new is motivation responsible for the biggest gap between younger and older generations. A full 28% of Gen Z and 33% of millennial consumers selected to try something new as the reason for using technology to manage finances. This compared to 21% of Gen X and 12% of boomers using technology because they wanted to try something new.
Gen Z and millenials are also far more responsive to social pressure from their peers to adopt new technologies. Twenty-two percent of Gen Z consumers and 21% of millenials react to social pressure by adopting technology to manage finances, while only 8% of Gen X and 4% of boomers feel compelled to do the same.
Having been born into a digital world, digital natives are unafraid to try a new payment app or digital lending service, just because it’s better than anything else available. They’re accustomed to the fast pace of technological development, and the accelerated life cycle of digital tools. Thirty percent of Gen Z and 34% of millennials have little hesitation to jump on board with newer, better offerings, as opposed to 23% of Gen X and 17% of boomers.
Next-Gen Use Cases Built to Serve Younger Generations
One of the newest, fastest-growing use cases powered by open banking is Buy Now, Pay Later. BNPL is essentially a riff on layaway payment plans, where consumers gradually paid off a piece of merchandise before taking it home. BNPL apps and services allow users to have the merchandise right away, but split payments up over a short period of time, in many cases at zero percent interest. BNPL usage grew an astounding 81.2% from 2020 to 2021, with nearly 75% of BNPL users in the Gen Z and millennial cohort. They’re far more willing to adopt these new fintech tools, while Gen X and baby boomers trust a branded card over new digital innovations.
Some BNPL lenders are using open banking and consumer-permissioned data points to look beyond FICO scores to qualify borrowers. This benefits consumers who have thin credit files, who can now establish a history of borrowing and repaying, without the traditional FICO barrier.
Young consumers are also loving the new wave of gamified digital banking experiences that open banking can enable. For a generation raised on video games, this is a natural fit. Gamification has been hugely successful in education, health and fitness, and is steadily growing in the finance sector. Through challenges where the user can compete against others, themselves, or even build a virtual world to entice smart financial moves, next-gen apps and services are catering to the tastes, desires and motivations of younger consumers.
Given that most of their daily lives take place on a mobile screen, it’s not surprising that Gen Z and millennials are far more likely to connect their bank accounts for digital payments. Recurring transactions like gym and streaming memberships, digital wallet top-ups, and even retail purchases are all use cases that young consumers are readily adopting to make direct digital payments.
Digital Banking Isn’t Trending, It’s the Future
Digital natives are driving innovation in the finance sector. A full 78% of millennials use mobile banking, and one-fourth of millennials now have their primary checking accounts in digital-only banks. Open banking platforms can empower these consumers to benefit from their data through a wide variety of third-party financial apps and services. These apps and services utilize that data to offer them the new money experiences they want in their financial lives.
As consumers adopt and demand more personalized digital tools to save time and money, and look to improve their financial outlook, our partners can leverage open banking solutions to drive stronger customer engagement and loyalty. Consumers should be at the center of the data experience, helping them feel more connected and in control.
Finicity’s Global Open Banking Platform is democratizing access to data, providing consumers with greater access to credit, payment choices, and convenient digital banking experiences. With their growing purchase power, this is what Gen Z and Millennial generations expect and demand, moving into the next evolution of financial apps and services.
To learn more about the use cases driving young consumers to fintech, read the full study here.