By Jess Turner, Executive Vice President of Global Open Banking and API at Mastercard
So much has changed over the last 20 years in payments that it’s hard to imagine the way the world used to be. A world where booking a trip or shopping for everyday needs required visiting a local travel agent or a grocery store in person, using paper currency for every transaction.
Today, we’ve become used to an ever-expanding menu of payment choices. Different circumstances call for different types of payments — the convenience of cards for everyday purchases and extended payment terms; bill pay and account-to-account for recurring payments; installments plans for larger purchases spread over a few months. All of these options have emerged as money has become an increasingly digital or data-driven experience, and they are only expected to become more popular in the coming years. According to the results of Mastercard’s 2022 New Payment Index Report, 85% of consumers made at least one digital payment in the past year and 93% expect to in the next 12 months. Consumers are also increasingly adopting alternatives such as digital wallets (35%), digital credit or debit cards (32%) and digital money transfer apps (31%).
We all saw the impacts of COVID when we needed to be socially distanced. Electronic payments played a key role in keeping life and the economy running. Now, those digital experiences are supercharging other activities. Open banking lets people and businesses safely share their financial data with forward-thinking organizations in order to access new and improved financial experiences like digital payments.
Going forward, consumers will likely have access to even more sophisticated payment solutions. Mastercard’s 2022 Index Report also showed that:
- Nearly 60% of consumers are open to connecting their bank account to other financial services to enable automatic repayments for installment plans.
- More than half of consumers have already used a merchant-specific currency, including loyalty points, store credit or “in-game” money.
- Younger generations are more likely to explore payments in emerging spaces – 48% of Gen Z and millennials are interested in being able to purchase virtual products in the metaverse.
The financial data that’s now delivered from open banking was historically available to the consumers themselves – on a computer screen or a paper statement – but traditionally has been cumbersome and complex to use. Yet, with open banking, consumers can now take advantage of new services that make their daily lives easier and with higher levels of safety by opting to share their data with a host of financial institutions and third parties, ranging from billers, merchants, fintechs and digital platforms.
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 data.
The world is still in the early days of open banking. As an industry, we’re connecting to additional financial data types (sometimes referred to as Open Finance) such as investments, retirement, payroll, and utilities. Financial institutions and fintechs are continuing to innovate financial experiences. In the ecosystem of payments, we’re dramatically expanding choices for consumers and businesses to pay or get paid how, where and when they want.
As an industry, we’re increasing payment choice, but we’re also optimizing these experiences. Our Smart Payment Decisioning Tools integrate consumer-permissioned data in the account-to-account payment experience, providing billers with indicators of payment success likelihood. Then enhancing payment processing options based on factors like speed and confidence. We are working with our partners to modernizing account-based payments to provide the best outcome for consumers, banks and merchants. It can ensure a higher level of completed payments, supporting stronger impact for consumers and operational efficiencies for banks. Some of these data services are delivered through Finicity, a Mastercard company.
As open banking-enabled financial services proliferate and their use impacts our daily lives, we as consumers and businesses will expect the same security, protections, and confidence we’ve come to expect of our other financial experiences. We will also see that our ability to control and safely share our data using bank accounts, Pay-by-Bank, blockchain, cards and digital wallets will be transformational to our money experience – making it easier to understand our financial fitness and gain the insights needed to make the best financial decisions.
To deliver on its promise, open banking requires the most advanced principles and technology in data privacy and security — to provide an easy and effective way to verify account ownership and identity. The open banking ecosystem is rapidly expanding, ushering in the next wave of systems that scale. Players with deep expertise are injecting further trust for even greater adoption. Early results indicate that we’ve got a bright future ahead – more choice in lending and payment types, more control over our financial data and more insights to help us achieve our financial goals. Learn more about our Mastercard Open Banking solutions for payments and account opening.