Today’s small-to-mid-sized business (SMB) is evolving alongside the wider changes sweeping across finance, society and the workforce. While it’s still possible to run a successful business using traditional methods of capital access, customer acquisition, cost management and a myriad of other considerations, digital apps and services give business owners the greatest advantage. More and more, consumers are adopting open banking tools to spend, save and manage. SMBs are increasingly embracing digital platforms, apps and services in order to create the experiences that today’s consumers expect, and to thrive in a fast-paced competitive environment. 

The supply chain and pandemic-related inflationary pressures of the last two years have caused a host of issues for business owners. According to Mastercard’s new Rise of Open Banking Small Business study, rising costs and new methods of customer acquisition, talent acquisition and capital access are all front-of-mind for the SMB. 

This has led to an encouraging trend: SMB owners have been quick to adopt digital tools to fund, manage and promote their businesses. Nine in 10 owners consider themselves heavy fintech users for both personal and business needs. Some other key findings from the research:

  • Eighty percent started using digital channels for loans in the past two years.
  • Eighty-four percent say technology makes them feel more confident when applying for a business loan. 
  • Sixty-four percent have received a business loan through digital channels. 

These digital adoption numbers are higher than consumer numbers. SMB owners are forward-thinking. They’re quicker to adopt better solutions, and they’re accustomed to adapting to market conditions. 

Digital Transformation is Meeting Small Business Challenges Head-On

The pandemic of 2020 changed how businesses operate, accelerating a trend toward digitization that was already gaining steam. Banking, finance, investing, saving and spending have all gone more digital, enhancing the convenience and functionality of mobile and online apps and services. Doing business from home and “on the go” is becoming the norm, and open banking is the foundation for the next-gen innovative financial tools that both consumers and businesses use every day. Small business owners are taking advantage of this transition, leveraging heavy use of fintech innovations to raise their financial IQ.

While business owners are learning as they adapt and adjust to uncertain and ever-changing norms, the Rise of Open Banking study shows that there are a few concerns at the top of their minds on a daily basis.

  • Inflation. Keeping up with rising costs is the number one stressor for SMBs. With price hikes at 40-year highs, businesses are having to find creative solutions to maintain sustainable profit margins. Forty-seven percent of owners cited rising costs as their number one problem. Consumer-facing industries like restaurants and retail face even more pressure, with over 50% of owners saying that inflation is their top issue.
  • New Customer Acquisition. Thirty-nine percent of SMB owners said that reaching new customers was their biggest pain point. Professional services businesses were more urgent about new customers, with 49% of owners saying it’s a continual concern for them. 
  • Hiring Skilled Employees. Pandemic-related restrictions and social trends like “The Great Resignation” changed the employment landscape quickly and drastically. Thirty-five percent of employers are having trouble navigating the new dynamics of a workforce that has a strong preference to work-from-home. Doctors (42%) and farmers (44%) struggle even more to find the hires they need, as do many businesses that require employees to be in-store or in-office. 
  • Managing Operations. Twenty-seven percent of owners said that efficient tools and systems to manage their businesses and business finances were a top issue.

Open Banking Innovations add Speed, Efficiency and Personalization to Banking and Financial Services

A full 85% of business owners are looking for faster, easier access to capital, creating a clear opportunity to partner with them for customized, agile funding solutions. The number one financial tool that SMBs rely on is business credit cards, but 81% are more interested in a loan that’s tailored to their business’s specific needs. Sixty-two percent of small businesses rely on loans as a lifeline. 

Payments are at the heart of SMB digital use cases. To streamline the customer journey, owners rely on open banking, embracing digital wallets, cryptocurrency and other new fintech tools. 

Connecting accounts to manage business finances provides the opportunity to give personalized insights. It also adds convenience for SMB owners looking for a streamlined way to tackle critical business tasks like banking, invoicing, paying bills and managing cash flow.

SMB Open Banking Adoption is Strong

Owners are using open banking innovations to improve their financial fitness. They are creating more seamless operations within their businesses by using intelligent open banking tools that manage the complexities of daily data flow for them. Linking accounts, making payments, getting paid, banking and accounting are just a few of the crucial tasks that are becoming quicker, smarter and more secure through digitization. 

Owners are linking their financial accounts to take advantage of new apps and services. Eighty-eight percent are using open banking data to better manage their operations. Eighty-five percent are looking for the customized recommendations that can come from the analytics and machine learning that can be applied to owner-permissioned data. 

Feeding intelligent, rich data into financial management tools is giving businesses the edge they need to grow and adapt, in this era of rapid change. They’re improving their financial health and decision making, while automating tasks and saving precious time. 

Paying and getting paid is quicker and more efficient. 

The evolution of banking and financial services is here, and SMB owners are embracing it. This is the first in a Rise of Open Banking series of blogs, where we’ll take a deep dive into some of the solutions powered by open banking for the SMB that is going digital.

If you want to read ahead, click here to download the full report.

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.

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.

Related Pages:

Income products – finicity.com/lend/income

Income verification mortgage – finicity.com/mortgage/income-verification

Open banking – finicity.com/open-banking

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.

 

 

 

 

For 44 million Americans, the weight of unyielding student loan debt is a major cause of stress and anxiety, a barrier to homeownership and can be a lifelong impediment to building wealth. Nationwide, the total student debt level stands at a staggering $1.7 trillion. Managing that debt has proven to be complicated and inefficient for borrowers and lenders alike.

Bottom line: Access to consumer-permissioned student loan data presents a unique opportunity. Innovators can step in and create apps and build better services that leverage student loan data through Finicity’s open banking platform, to help consumers with student loan debt.

Introducing Normalized Student Loan Data

For fintech innovators, lenders, refinancers, employers and institutions of higher education, working with student loan data has been challenging. Until now, the data hasn’t been normalized. Higher learning institutions have used different naming conventions for data fields, making documentation harder to read, compare or translate. Lenders and servicers have to navigate a forest of screenshots, phone calls with lengthy hold times and unsecure paper documents in their efforts to verify loan information.

These time-consuming manual processes incur labor costs to lenders and servicers. This can cause stress, revenue loss, time loss and negatively impact the lender’s operational efficiency.  

Finicity has normalized the data across data fields, vocabulary, naming conventions and applications of rules, resulting in a modernized ecosystem for all stakeholders through its open banking platform. This significantly reduces the time to market for your student loan solutions.

Innovation Platform Using Student Loan Data

Student loan data doesn’t have to be confusing or complicated. With Finicity open banking, an optimized API call can help reduce costs, and is delivered in a formation that doesn’t require additional coding. Our API endpoint can yield the complete loan details, and the full payment details of a student loan account, including up to 24 months of transaction history.

consumer permissioned student loan data

Data Coverage 

  • Normalized, comprehensive data covering most student loan accounts. It’s delivered through our open banking platform, with connections to student loan accounts that include federal Direct Loans, FFEL & Perkins, and some of the largest private lenders and servicers (e.g. Navient, Nelnet, Aidvantage, Sallie Mae, Discover, Firstmark, Commonbond, LendKey, etc).

Quality of Data

  • Extensive Loan Account Details:  An API call to the Fincity open banking platform can yield a primary account, transactions by account, loan payment details, statements, account owner and much more. Data is aggregated at the three largest levels of the student loan hierarchy; student loan, student loan group and student loan account, while also being able to provide customer & institution-level details.
  • Transaction lookback period has been extended to more accurately capture transaction additions or changes. Up to twenty-four months of transactions can be offered in one API call for an extended view of account history.
  • Complementary data insight solutions with analytics of a borrower’s credits, debits and balances to deliver smarter credit decisioning.
  • Reliable Uptime Data Monitoring: Multi-tier data integrity and student loan-specific data monitoring.

Create Winning Borrower Experiences

Innovators can quickly develop and scale new and improved financial services with Finicity’s open banking platform. Student loans are the second-largest debt sector in the United States. There is a massive opportunity to develop new apps and services to help individuals with student loan debt. Through partnering with our clients, Finicity’s open banking platform is powering solutions to help the 44 million Americans who carry student loan balances. 

Some of the ways innovators can upgrade the borrower experience, using permissioned student loan data:

  • Create frictionless onboarding and account setup for borrowers to apply for loans, set up accounts, manage repayment and distribute funding to students.
  • Better data for better credit decisioning. It’s pretty simple. Student loan borrowers want a better experience. Lenders want the most accurate and real-time data for better credit decisioning. So we’ve combined the best data with smart insights to transform the lending experience.
  • Finicity data powers leading personal finance management (PFM) apps. These tools allow borrowers to view, monitor and manage their debt in near real time by pulling smart, categorized and permissioned loan data into the app. If borrowers can easily understand their financial position and repayment options, they may reduce stress and more effectively manage their debt. 
  • Attracting and retaining the best talent in today’s job market is a challenge for any company. Leveraging permissioned student loan data, some employers are creating benefits like 401k accounts that match student loan payments and direct matching of student loan payments back to the student loan.
  • By using the account details endpoint, it’s possible to verify that a student is enrolled in at least half-time coursework by the National Student Loan Data System. Using this data, a rich field of possibility opens up for student-specific benefits. Discounts, rewards and loyalty programs can be built specifically for current students.
  • Even the more administrative aspects of student loans can be modernized by open banking technology. Student borrowers can be offered the ability to easily and securely apply for federal programs like Public Service Loan Forgiveness or an Income-Driven Repayment plan. No wading through W2s, paystubs and long, frustrating calls to student loan servicers. Quick and secure.

Step Into the Future

Break out of the spider web of paper documents, screenshots, phone calls and mismatched data. Replace countless lost hours of productivity with optimized API calls that offer the comprehensive, relevant, normalized data to build solutions on.

Innovate with us to create knowledge-based services that empower students, so they can manage, consolidate, refinance and repay their obligations with the level of transparency that they deserve. 

Click here to learn more about our Student Loan Data.  If you are ready to see this data in action, click here to request a demo.

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.

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.

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.

Today, Freddie Mac announced that its Loan Product Advisor® asset and income modeler (AIM) has been enhanced to provide clients with automated income assessment using consumer-permissioned, direct deposit account data from trusted third-party service providers like Finicity, a Mastercard company. AIM for income using direct deposits increases the confidence in income calculations of certain income types when there is enough direct deposit history sourced from trusted third-party service providers.

Finicity’s Mortgage Verification Services (MVS) is approved for this submission through AIM providing direct deposit transaction data to fuel this innovative, data-driven approach. It identifies income streams used for mortgage qualification, delivering accurate risk assessment results. 

Assets, income and employment verifications are vital to mortgage lenders looking to verify borrowers’ finances. However, between unreliable results, miscommunications and good old-fashioned paper-chases, verifying assets, employment and income can be cumbersome. MVS helps borrowers get faster approvals with fewer conditions upfront, allowing them to close and get into their homes faster. MVS can help lenders:

  • More easily assess borrower capacity/automates income calculations.
  • Reduce frustrations caused by paper submissions and reasking for documentation to verify assets, income and employment.
  • Remove subjectivity and manual errors in processing and underwriting.
  • Lower risk and probability of fraudulent activity.
  • Increase referrals.

“We are excited to see a single report for the digital verification of employment, income and assets through Freddie Mac’s direct deposit enhancement within their AIM solution,” said Andy Sheehan, Mastercard EVP of Open Banking Business. “Utilizing consumer-permissioned data and a single source of verification can help mitigate risk for lenders, create an improved consumer experience and ultimately increase overall financial inclusion by helping borrowers realize the dream of owning a home.”

Efficient Assessment

AIM leverages consumer-permissioned data from third-party service providers like Finicity, to automate the manual processes of assessing borrower assets and income.  MVS improves the success rates for identifying income and employment using data from income transactions. It can also increase the assessed income amount by providing data for a more accurate gross-up calculation.

“Adding Finicity’s Mortgage Verification Services is the next step in the evolution of AIM,” said Christina Randolph, Director, Strategic Technology Partnership at Freddie Mac. “Our partnership with Finicity has helped better identify pay deposits data to our AIM capability, using accurate and verifiable data that meet our underwriting standards. This means more opportunities for cost savings for lenders. It does all this while delivering a vastly improved lending experience to borrowers.”

How It Works

Once Freddie Mac releases this offering, lenders using Loan Product Advisor v5 0.06 or higher can use it without needing to be accepted into a controlled release program. Once turned on by Freddie Mac, a lender can automatically start using the direct deposit data generated through Finicity’s Mortgage Verification Services through a single report. Lenders can use this report by simply contacting Freddie Mac and connecting to Finicity. The report includes 24 months of direct deposit transactional history and also includes Finicity-identified income streams.

The report generated through MVS has two sections; the top section includes credits/debits for asset assessment defaults to 61 days (but can be customized up to 24 months depending on the from date), and the bottom section is up to 24 months of income stream credit transactions only.

As an added bonus, the reduced cost of implementing MVS is reflected directly in the balance sheet. On average, up to 12 days can be cut off the processing time for each loan. The hours formerly spent by loan officers chasing down borrower documents are invested in higher-return work activities such as marketing and sales to drive additional loans.

MVS is available via direct integration, SimpleNexus, ICE Technology and Finicity Reports today. Want to elevate your efficiency while enhancing the customer lending journey? Get started today.

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.