Synctera, a leading FinTech banking provider helping innovators build their own FinTechs more efficiently, is expanding its partnership with Mastercard by integrating Mastercard’s open banking platform (provided by Mastercard’s wholly owned subsidiary, Finicity) to provide account verification solutions for Synctera-powered FinTechs. The addition of consumer-permissioned data from an open banking platform allows early-stage FinTechs access to the data they need to mitigate fraud, maximize confidence, and provide more choice in payment transactions to improve user experiences.
“Mastercard’s open banking platform provides consumer-permissioned data that is critical to enabling all ecosystem players, opening the door for the future of financial experiences, and can help streamline account verification to reduce friction between apps and consumers,” said Andy Sheehan, Executive Vice President, U.S. Open Banking at Mastercard. “Mastercard and Synctera’s partnership enhances the support and collaboration that is critical to FinTech innovators and will allow entrepreneurs and developers the ability to go to market quickly and ultimately deliver more consumer choice.”
Read more here.
In traditional banking, to get a loan, make a deposit or speak to a banker, customers have usually traveled to a physical branch.
But today, more banking services are available digitally. As a complement to existing online banking services, innovators are building the new and improved financial experiences that consumers are looking for. These innovators may not even have a brick-and-mortar presence, but they add multiple layers of value on top of existing financial services.
The digital movement is giving customers more tools and options to build their financial lives in the way they see fit, and Banking-as-a-Service (BaaS) is making this possible. Customers can now turn to innovators who offer niche financial services that cater to their unique needs, creating new ways for them to split dinner bills, take out a microloan, invest in crypto, track spending, saving and more.
But creating a new fintech company, app or product has not been simple. The traditional path to creating financial services was a long, hard road, from getting a banking license to building a new tech stack. Synctera is one fintech that offers an easier on-ramp to new, innovative financial products through BaaS. BaaS platforms and technology solutions provide the building blocks necessary for a fintech or neobank to quickly start creating innovative financial use cases for the modern consumer.
Synctera acts as a fintech banking platform, connecting a fintech builder with a community bank that has the requisite banking license. On the development side, Synctera provides an end-to-end toolkit, offering the critical technology services and providers that help innovators build their ideas. This includes consumer-permissioned data for account verification through Mastercard’s open banking platform, to help bring financial service ideas like quick money movement to life.
Modularizing banking solutions
All the things an entrepreneur needs in order to offer a banking service—including the ability to accept deposits, make loans and payments — BaaS service providers like Synctera encapsulate into the application programming interface (API) as modular blocks, so a fintech can tap in and build new solutions. Whether it’s issuing cards, sending ACH payments or more basic financial operations, developers can take these blocks and reassemble them to meet their needs.
The key to building with a BaaS provider is having just one API that’s simple to connect to. This reduces architecture and modeling requirements on the fintech development side. These tools allow fintechs to set up new customer accounts without delays from microdeposits, using instant verification, enabling customers to connect their external accounts and transfer funds into new financial services faster.
Another advantage of BaaS: Since multiple solutions are offered in the same API, it’s easy to make changes. If a company that’s scaling up tries an account authentication solution that’s slow and not quickly verifying that customer accounts are funded, they can replace it seamlessly with an alternate solution. That means less disruption to operations; money can keep moving.
Offering a marketplace of options
BaaS wraps all of its services, including those developed in-house and those from outside developers, into one API marketplace to make it easy for fintechs to launch everything together. Instead of trying to integrate tech from multiple financial services partners, a fintech developer can come to a BaaS provider like Synctera and build more, with less overhead and less plumbing.
Working with a BaaS provider allows fintech builders to focus more on the features of the product they’re offering to customers, like offering a virtual storefront to artists, discounted pet insurance to pet owners or easier access to small business capital. The marketplace solution means a fintech could choose a waterfall approach; if one solution fails, the system can be set up to automatically try another one.
How Mastercard fits in
Consumer-permissioned financial data can also be piped into BaaS solutions. Mastercard’s open banking platform provides secure connections to consumer-permissioned financial data from 95% of bank deposit accounts in the U.S. This data can power use cases like credit decisioning, account opening and linking. It creates more choice in payments and transaction data for better financial insights.
Every fintech product needs financial data, the ability to manage consumer permission and to access those accounts. It’s one thing to have a customer knock on your door. It’s another to help them walk through the door without unnecessary obstacles blocking their way, and to make the first deposit into their new accounts happen quickly and compliantly.
Mastercard’s open banking platform provides consumer-permissioned data to power the tools that Synctera and other BaaS providers and innovators create. By using account verification and transaction data from Mastercard’s open banking platform, all ecosystem players can authenticate users and get them online fast, and in a compliant manner.
Fraud detection and speed are of utmost importance
Understandably, the risk, compliance and customer experience balance is delicate–efficiency can’t compromise fraud prevention. By adding open banking data to the BaaS platform, financial service providers can verify and access bank account data with instant account verification, helping to ensure that the person opening a new account actually owns the account they are linking to the new fintech app, before moving money.
Speed is another top concern for fintech builders. And since banks are not tech companies, many operate on pre-internet tech. COBOL, a programming language developed in 1959 that underpins many banking systems, can make it difficult to upgrade systems quickly, or to seamlessly connect with today’s technology. This can result in a speed mismatch between banking networks and the world of fintechs, who want to be able to release new products and services in a few weeks. Mastercard helps connect customer accounts quickly and speeds up the customer onboarding process.
There’s a lot of new and improved technology being created in the world of financial services, and more options for developers result in more next-gen products that help consumers on their financial journeys.
Learn more about how Synctera and Mastercard are helping neobank and fintech builders unlock better financial access for people at synctera.com.
As part of its Smarter Faster Payments Conference here, Nacha announced its 2022 Pay-Me Award Honorees, recognizing companies and organizations that have helped advance the ever-evolving payments industry.
The Excellence in Smart Payments Decisioning award will go to Finicity, a Mastercard company, for its Smart Payment Decisioning Tools.
See all the honorees here.
Whether it comes to buying homes and automobiles, seeking a personal or small business loan, or even approval to rent an apartment, there can be one daunting step of the loan process: income verification.
It can take a long time. It involves a lot of paperwork—if the borrower has devoted the file cabinet space to store it. And without transparency or the right information, the process can feel arbitrary.
Open banking can help. Let’s start at the beginning.
Which Documents Usually Provide Verification of Income?
Paystubs, which are one of the most basic data sources, can provide proof of income as well as employment verification at the same time. With a paycheck traceable to an employer or a client, a lender can determine what kind of income the check represents and can follow up with its issuer.
Other income documents include proof-of-income letters, the standard W-2 annual tax statement and other tax forms that may be more fragmented. These documents aren’t always readily available. While they can be obtained from payroll providers and tax filing software, that involves even more digging and delays for what should be a simple process.
Processing that kind of paperwork, following up with employers and verifying the details is time-intensive—and thus, money-intensive.
How Does Finicity’s Income Verification Make a Difference?
Open banking gives lenders a way to verify income quickly and securely, by verifying income where income is deposited in bank accounts.
Finicity’s income verification allows borrowers to connect their financial accounts to the lenders or services they’re interacting with. This lets borrowers quickly and securely skip much of the manual paperwork, while lenders can make informed decisions with comprehensive transaction and income data, ranging from 24 months of deposit transactions to estimated annual income and average monthly income. All of the information is categorized and ranked with confidence streams using artificial intelligence and machine learning as part of Finicity’s data analytics solutions.
What do we mean by “comprehensive data?” With open banking, the process of verifying income can go beyond paychecks, tax forms and phone calls. With more consumer-permissioned data sources comes a fuller picture of a borrower’s financial health and more accurate income verification.
Where Does Open Banking Fit into Mortgage Lending?
Mortgages are one of the most significant loans that many consumers will take out in their lifetimes, and the mortgage application process can be complex—to an intimidating degree. According to a recent Finicity survey of homebuyers, the top reason that people hesitate to refinance their home is because of the prospect of going through the income and employment verification and qualification processes all over again.
Mortgage credit decisioning hinges on the borrower’s ability to make their mortgage payments on time. Most mortgage lenders require borrowers to provide at least two years of employment and income history via tax documents, paystubs and asset statements. The same goes for self-employed borrowers.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity), is able to leverage open banking data to satisfy the most stringent guidelines for the highest-value loans. We’re one of the only data providers approved to verify assets and income digitally by Fannie Mae and Freddie Mac. This data also makes it easy to refresh employment verifications right before close to make sure nothing has changed simply by checking whether they received their last paycheck. When you’re working with something as consequential as someone’s home loan, trust is key.
How Can Renters Benefit from Open Banking?
Homeownership isn’t for everyone, and open banking also helps renters navigating the apartment application process. Landlords screening potential tenants can use the same data to make decisions based on the applicant’s income and their historical rental payments. It can also help give context to low credit scores or other potential red flags on the application, resulting in a fairer decisioning process.
When do Auto Loans Require an Income Check?
Auto loans don’t typically require income verification, but the process may come into play when the prospective borrower has a thin credit file, smaller down payment or a lower credit score. The same goes for credit cards, personal loans and growing payment segments like buy-now-pay-later (BNPL).
For thin-file borrowers such as young people and recent immigrants, checking a credit score doesn’t tell their whole financial story. It can lead to frustrating denials, even though they have evidence of qualifying income and that they pay their bills on time.
By incorporating income and other data—like transactions from connected bank accounts, debt-to-income ratio and more, open finance opens up a world of possibility. Borrowers can be approved for their car loan and qualify for lower interest rates. Lenders, meanwhile, won’t miss out on opportunities to bring new customers on board with a simple process that they can get through while their buyer is still at the dealership.
How can Income Data be Incorporated into Decisioning for Personal Lending?
For many personal lenders, checking income after the fact may not be the most efficient way to approve loans. With open finance, the income, transaction data and analytics can be just as easily incorporated into their lending algorithms as in mortgage and auto lending.
Personal lenders of all types look at hundreds of different pieces of data, depending on how much they’re lending and what it’s for. Open banking provides highly actionable data, direct from the applicant’s bank accounts. It slides seamlessly into their decisioning models.
They no longer have to be satisfied with borrower-submitted income figures or delays in providing supporting documentation when a loan approval is up in the air. Using consumer-permissioned data, lenders receive a nearly real-time view of the applicant’s income and bank account data for a clearer credit decision.
How Does This Help the Consumer?
Verifying income with transaction data permissioned by consumers allows lenders and fintech innovators to simplify the customer experience with a more flexible underwriting process. It provides more choice to consumers, who can still use their paystubs or bank statements while also speeding up the decisioning process by permissioning their financial data.
Open banking adds the data necessary to easily verify income quickly, securely and without manual processes. Whether you’re lending, renting or leasing, Finicity’s income data can simplify the process and provide valuable insights. More data, more time saved, more satisfied borrowers and tenants—open banking helps everyone out.
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Bonifii today announced that it has selected Mastercard, through its wholly owned subsidiary Finicity, as the preferred open banking provider for its MemberPass® credit unions to access consumer-permissioned bank data, to inform underwriting for different loan types across mortgage, auto, personal and small business.
Mastercard’s open banking platform can deliver verification of income, asset, and employment reports directly to credit unions during the underwriting process, all built with consumer-permissioned data from the borrower. This technology enables credit unions to offer a digital-first method through which their borrowers can instantly provide the required information that the credit union needs to make a lending decision and replaces manual processes historically associated with the underwriting process for both the borrower and the lender.
Read more here.
For innovative financial services apps to work effectively, they need to meet the needs of their customers. One of the core ingredients of next-gen apps is accurate, up-to-the-minute financial data. With this data, apps can transform user financial service experiences, enabling consumers to direct payments and gain insights into savings and spending. Apps can even remove the friction of applying for loans.
The challenge is coming up with a secure way to enable access to this all-important data.
According to Mastercard’s Rise of Open Banking survey, nine out of 10 consumers already use technology to manage their money. Apps like Experian Boost, which helps consumers improve their credit score, or Quicken, which provides a 360-degree view of finances, save consumers time and add convenience to their lives. Open banking platforms, which allow users to grant third parties access to their banking data, provide the data that makes the functionality of these apps possible.
The backbone of open banking is empowering consumers and small and midsize businesses to securely share data. Legacy technologies have played an important role in this. However, this data sharing experience increasingly is enabled through an API connectivity model that will further increase security and improve data access.
Mastercard has partnered with Fiserv to move this open banking model forward.
Fiserv enables thousands of banks to easily and readily deploy digital capabilities and services. AllData® Connect from Fiserv enables consumers to grant permission through their bank to share their data with the apps they want to use.
The bank then issues a token that can be used to authenticate the sharing of the consumer’s financial information with the apps they use through the Mastercard open banking platform. This permission is transparent to the consumer and can be managed and revoked easily.
With nearly 40% of US banks using Fiserv core technology, the partnership with Mastercard expands consumer access to secure and convenient tokenization capabilities, and is set to fast-forward the growth of new financial experiences through this secure, direct API access.
Expanding Secure, Tokenized API Access to Upgrade the Open Banking Ecosystem
The partnership between both companies represents a significant leap forward toward the goal of fully tokenized, direct API access and the retirement of legacy technologies. Mastercard, through its Finicity acquisition, has long taken a leadership role in the adoption of API connectivity and has moved the majority of its traffic to these connections.
“The primary goal of this agreement is to remove the need for consumers to have to share their banking usernames and passwords with third parties in order to access their financial information,” says Paul Diegelman, vice president of Digital Payments and Data Aggregation at Fiserv. “The ability of fintech apps to access information via direct APIs also reduces the need for screen scraping, while improving the consumer’s user experience.”
AllData Connect from Fiserv makes it easy for banks to facilitate data sharing on behalf of their customers. Fiserv manages technology integration for the banks, saving them time and the costs related to implementing and maintaining the technology on their own. AllData Connect also provides banks more insight into the apps their customers are using, to simultaneously protect the data and provide services that create loyal bonds between the customer and the bank.
“Mastercard has provided credit and debit solutions to the Fiserv ecosystem for years,” says Ryan Christiansen, Mastercard’s senior vice president of data access partnerships. “Now through this agreement, we deepen our relationship by providing trusted data-sharing capabilities that fuel next-gen financial service experiences, such as expanding payment choices, budgeting and lending options to consumers and small businesses through the financial institutions supported by Fiserv.”
Learn more about Finicity, a Mastercard company’s principles and innovations here.
Finicity has been an open-banking catalyst for Mastercard. One new Mastercard product, called Payment Success Indicator, relies on bank account information provided by the consumer on an opt-in basis. The product was developed through open banking, or a process for sharing bank account information with third parties.
A merchant, bank, digital wallet or payment service provider uses this bank account information to access a consumer’s balance and historial behavioral risk pattern for each transaction. That informs the Payment Routing Optimizer, which recommends the right day and payment rail (such as same-day ACH or next-day ACH) that strikes a balance for cost, speed and risk.
Read more at American Banker.
Open banking and now open finance are trading headlines when it comes to fintech, innovation and what the future holds. Differentiating the two isn’t always simple, but in the end, they’re both about empowering consumers and small and mid-size businesses (SMBs) to use their financial data to their benefit.
Depending on the geographic region, you are likely to get a nuanced answer for both terms’ meanings. In many respects, banking is finance and finance is banking. When it comes to consumer-permissioned data, it’s a distinction without a difference.
What is Open Banking?
Open banking empowers the consumer by allowing them to link or permission their financial data from bank accounts to trusted third parties for specific purposes. In some regions like the United Kingdom, European Union, Australia and Brazil, open banking is governed by very specific regulations. In others like the United States and Canada, it’s more broadly defined by the simple act of permissioning financial data to be shared with a third party. This is where it starts to blend with open finance.
What is Open Finance?
Open finance also utilizes consumer-permissioned data, but from financial accounts rather than typical bank deposit accounts. Examples include investment accounts, small business accounts, crypto wallets or fintech apps. This introduces new data types and new data uses because of how much more expansive the available data is.
The key is that it’s still permissioned data for a specific purpose. It’s typically something that benefits the consumer that they wouldn’t receive without sharing that data. In the U.S., what’s commonly referred to as open banking encompasses where the E.U. is heading with its open finance regulations.
Consumers were permissioning their data for use in fintech apps and other solutions long before the terms “open banking” or “open finance” were coined. These sharing and permissioning actions encompass the data currently covered by open banking and open finance in the E.U. It didn’t start solely with the Second Payment Services Directive (PSD2) and other open banking regulations. Consumers in the U.S. have been using the same data in apps dating back to the early 2000s.
In some markets, open banking and open finance are associated specifically with account data being connected via an application programming interface (API) with tokenized access. However other markets, including the U.S., often use both terms to describe the broader permissioned data sharing experience. It includes both next-gen connections via APIs with tokenized access and legacy technologies. Whatever the case, when a consumer wants to put their data to use, they can permission it in a few simple steps.
Open Finance Powers New Innovations
A lot of early use cases for consumer-permissioned data revolved around payments and personal financial management (PFM) apps. The next generation of solutions include innovations on the traditional payment and PFM experiences as well as new capabilities made possible through connections to more types of accounts, more data fields and a more expansive set of tools.
- Lending – Whether consumers are looking for a new credit card, personal loan or mortgage, open banking and open finance can help them qualify in a few steps. And small businesses can demonstrate their qualifications for needed capital through cash flow, business cards, other timely loan payments or a quick overview of their transaction history. Fairer representation of an individual’s creditworthiness can extend access to the digital economy to millions of people.
- Next-gen digital payments – Moving money from account to account was one of the things early open banking regulations in the U.K. set out to solve. Next-generation payment innovation is improving the payment experience from account setup through payments. It’s solving real-world challenges; offering more ways to pay with greater speed, convenience and confidence. Payments can flow and be optimized across any type of account, from paying simple monthly subscriptions to automating the flow of income from a single deposit account across a variety of connected accounts.
- Personal financial management – Open finance allows for the broadening of PFM from simple budget apps that track transactions to a view of investments, health savings accounts, crypto wallets or any other app. This new data provides more utility and a better understanding of financial health.
Benefits of Open Banking and Open Finance
Open banking empowers consumers and small businesses by creating a simple platform for accessing, controlling and permissioning their data so they can benefit from it. With connected accounts across the financial services spectrum, consumers and small businesses can put their data to work, whether it’s for one specific purpose or across multiple apps and services.
Open banking plays a central role in the financial ecosystem as a secure data exchange. Keeping the data flowing between accounts and apps securely and efficiently will continue to fuel innovation and provide benefits across the industry.
Where Open Banking and Open Finance are Headed
As an industry, data stewards and recipients are moving away from credential-based access and screen scraping to direct APIs for consumer-permissioned data sharing. APIs remove credential-sharing from the market and enhance access to quality data. Some markets define open banking and open finance as only full API access. Others view open banking and open finance as being about consumer empowerment to permission the use of their data via legacy and API access. Wherever a particular market is in the evolution of open banking and open finance, it is widely agreed that direct API access is superior and markets are moving toward this technology implementation. At the same time, we don’t want to lose ground in innovation by not allowing consumers to have continued access to their financial data as they did with legacy technologies. Like any technology transition, there is a need for “backward” compatibility for a period of time.
Open banking is a technological shift that is still very much in its early stages. As it emerges and matures, policymakers play a meaningful role in the direction and pace of this transformation. Providing clarity on data protection expectations, data privacy requirements and consumer data rights will help shape a more secure, diverse and inclusive financial market.
As we transition technologies and enable more seamless digital experiences, we, as an industry, alongside regulators, must ensure that consumers have data continuity.
What is data continuity? It’s the data consumers have used from their bank statements, paper checks and online banking apps. It’s the data that they’ve used widely for their financial lives and to get financial services up until now. It needs to follow them into the digital realm—in other words, open banking and open finance.
Open Finance and Open Banking are All About Empowering Consumers
As market dynamics continue to fuel the growth of data exchanges and identity markets, participation is pivotal to expanding new platform opportunities, such as open finance, that expand payment choice, improve financial literacy and extend financial inclusion to the underserved.
Consumer demand is already showing that these capabilities are long-awaited in the market and the desired outcomes are already being delivered. Whether you say “open banking” or “open finance,” or you use one for the other, it’s all about empowering consumers to use and benefit from their data. Either way, they will continue to make the next generation of consumer fintech apps and services more powerful and easier to use.
Consumer advocates and fintechs say a closer look needs to be taken at traditional credit scores and models, perhaps using a recently released fairness framework.
“People are realizing more and more that the data that we are using to build these systems is biased. It’s tainted. If you’re using biased data, you’re going to get biased outputs. So examining that data, making sure it’s clean, making sure it’s representative, making sure that it’s fair and accurate is really important,” said Lisa Rice, president and CEO of the National Fair Housing Alliance.
Read more about how credit scoring is changing here.
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.