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Open Banking, Payments

The rise of open banking: supercharging payments for small business

Offering fast, secure payment choices to consumers is absolutely essential to the success of any small-to-mid-sized business (SMB). The digitization of every business, large or small, has been underway for decades, but recent studies show that the pandemic accelerated that process by five years

Consumers are looking for fast, convenient, contactless ways to shop and pay bills, driving businesses to adopt open banking-powered card and non-card technologies and platforms to service them. 

Payments are the Entry Point to Open Banking for Small Businesses

Nearly nine in 10 business owners utilize digital payments and open banking-backed payments, speeding up cash flow. Owners are also leaning into open banking to verify, secure and personalize payment transactions. 

SMBs are projected to spend more than $100 billion on payment services by 2025. It’s no surprise that payments are the open banking entry point for small businesses, according to Mastercard’s Rise of Open Banking small business report. 

As emerging payment methods like cryptocurrency and digital wallets gain widespread adoption, SMBs rely on open banking to create streamlined customer journeys. 

Ninety percent of SMBs utilize services that link accounts, enabling the speed, convenience and confidence of open banking payments. Owners cite a few core payment-related benefits for linking accounts:

Small Businesses are Quickly Migrating to Digital

The pandemic-driven fast-forwarding of digital adoption by SMBs has raised owners’ financial IQ, as 95% consider themselves heavy fintech users. The top driver for fintech use is the desire to make their businesses more digital. Permissioned data and the payment innovations it enables are primary needs for the SMB, as 92% are currently using or want to use digital payment systems. With a 50.5% increase in online sales from 2019 to 2020, the trend toward digital is evident, and businesses are embracing open banking to stay ahead of the curve.

SMBs are looking for solutions for agility and resilience, powered by technology. They’re facing challenges that are mostly digital, and they’re looking for digital solutions. Owner-permissioned data, insights and analytics from open banking platforms is creating new payment experiences for SMBs to offer consumers. To the SMB owner, open banking is an opportunity to partner with an innovator and grow. 

Accelerating adoption of digital channels means that a small business needs a partner that can handle real-time bank account verification, account data snapshots and predictive analytics. These core services can mitigate payment failures and fees, enable onboarding, maintain compliance and power next-gen payment apps and services.

Mastercard’s complementary account-based payments business leverages best-in-class capabilities across infrastructure, applications and services. By converging capabilities, Mastercard provides one trusted platform that empowers businesses to pay and get paid with confidence, using a card, bank account, or cryptocurrency. SMB owners can use a device or no device, and send or receive payments in real time or later. This kind of empowerment is what today’s innovators can offer the SMB, by leveraging open banking solutions. Maximum choice in payment types and methods, powered by open banking, providing effective tools for small business. 

Open Banking Payment Innovations are Gaining Momentum

Account-based payments are an emerging area ripe for targeted fintech development. Open banking technology allows you to integrate consumer-permissioned technology to your fintech innovation that offers more ways to pay with greater speed, convenience and confidence. With better quality data and insights about the small business, the non-card payments journey can be smoother.

Account-based payments are a new way for consumers to pay small businesses with convenience, security and control. Instead of entering payment card information, the customer can view their bank and the account they want to use, authenticate themselves, and pay immediately. Customers can: 

Mastercard is delivering the platform for innovation in the payments sector, giving fintechs the ability to scale up confidently. The recent release of Mastercard’s Smart Payment Decisioning Tools uses real-time bank data permissioned by a consumer to show payment indicators that can raise successful payment completion rates and reduce transaction costs. With Payment Success Indicator, payment failure risk can be mitigated by scoring the likelihood of a success before initiating it. Then with Payment Routing Optimizer, payment originators are given a recommendation for the most optimal day and rail to choose for the highest likelihood of successful settlement at the best cost and speed. These next-gen tools can give the SMB the advantage they need to best compete in a growing digital economy. 

In the next installment of the Rise of Open Banking series, we look at how open banking is driving innovation in SMB Financial Management. Click here to download the full study.