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Mastercard move shows momentum behind open banking

Mastercard has announced it has entered into an agreement to acquire Finicity, a North American provider of real-time access to financial data and insights. The purchase price is US$825m, and Finicity’s existing shareholders have the potential for an earn-out of up to an additional US$160m if performance targets are met.

The addition of Finicity’s complementary technology and teams is designed to strengthen the existing Mastercard open banking platform to enable and safeguard a greater choice of financial services, reinforcing the company’s long-standing partnerships with and commitment to financial institutions and fintechs across the globe.

A growing trend of investment

Open banking gives people and businesses more control over their financial data. This includes determining how and where third parties - such as fintechs or other banks - can access that information to provide new services like money management programs or initiate payments on their behalf. Mastercard has increasingly invested in this space over several years, including the 2019 launch of a set of open banking solutions in Europe.

“Open banking is a growing global trend and a strategically important space for us," said Michael Miebach, president of Mastercard. "With the addition of Finicity, we expect to not only advance our open banking strategy, but enhance how we support and accelerate today’s digital economy across several markets. Finicity has a proven business, built on partnerships with thousands of banks and fintechs, similar to us. Finicity also shares our commitment to consumer-centric data practices, ensuring consumers have a say in how and where their information should be used. It’s through the use of next generation open banking APIs and clear consumer approvals that this financial information can deliver streamlined loan and mortgage processes, rapid account-based payment initiation and personal financial management solutions.”

Finicity’s technology and employees will enhance Mastercard’s existing open banking solutions by enabling them to expand in North America and other key geographies. Today, Mastercard open banking services in Europe feature connections to more than 1,800 financial institutions. With a direct connection to the North American banking, lending and wealth management ecosystem, Mastercard will extend Finicity’s reach to be a one-stop partner for any consumer, bank, merchant, fintech or government’s data, payment and open banking needs.

“Since our founding, Nick Thomas and I have focused on developing industry-leading technology and building an organization that empowers consumers and organizations to better understand, manage and use their financial data to improve their financial lives,” said Steve Smith, chief executive officer and co-founder of Finicity. “Enabling people to access and control their data, while ensuring best practices to protect that data, will continue to drive tremendous innovation that increases financial literacy, inclusion and health. This partnership with Mastercard helps us accelerate this mission globally.” 

Following the completion of the transaction, Mastercard’s existing technology and expertise combined with Finicity’s new analytics platforms, will help streamline the credit decisioning process for consumers and small businesses. Additionally, the integration of Finicity’s account owner verification tools to Mastercard’s New Payment Platform capabilities will deliver an improved ACH and real-time payments experience to businesses, merchants and consumers.

Commitment to responsible data practices

Finicity shares Mastercard’s commitment to safe and secure data practices centred around the individual. Finicity’s co-founders have played a role in the advancing the discussion of best practices across multiple industries. Finicity says it has a strong commitment to deliver best-in-class data management practices by partnering with banks and their customers to ensure secure connectivity is established.

“Bank of America is a strong believer in giving people control over their financial information and the ability to share it securely,” said Mark Monaco, head of Enterprise Payments at Bank of America. “We’ve worked with both Finicity and Mastercard, as well as industry groups such as Financial Data Exchange, to accelerate the adoption of the highest standards of privacy and security for data sharing, and to eliminate the retention and storage of individuals’ financial details by third parties. We look forward to continuing our work with Finicity and Mastercard to further improve the customer experience.”

“Brex’s innovative offering uses Finicity’s connectivity, giving us access to the best quality business-permissioned data to power our platform,” said Henrique Dubugras, chief executive officer, Brex. “The combination of Finicity’s capabilities with Mastercard’s products and services will enable us to create innovative solutions to enhance our Brex offerings.”

As with past acquisitions, Mastercard does not expect this acquisition to be incrementally dilutive to its business for greater than 24 months. This dilution is driven by investments in the business, including its international expansion, as well as the impact of purchase accounting and integration related costs.  

The transaction, which is anticipated to close by year’s end, is subject to regulatory review and other customary closing conditions.

Appetite for open banking continues to grow worldwide

We have covered various open banking stories on CTMfile in 2020, with the development of practical solutions around open banking suggesting that the concept has come of age. Indeed, the Mastercard news follows a survey last month from Finastra that revealed how the appetite for open banking is picking up pace worldwide. Finastra research revealed that 86% of global banks are looking to use open APIs to enable open banking capabilities in the next 12 months. In addition, 30% of banks surveyed believe open banking is already making a tangible impact in delivering improved overall customer experience. This is against a backdrop where regulation is perceived to be tighter than a year ago and close to half (48%) of those audited believe that regulators are holding back innovation.

The research, which was conducted prior to the Coronavirus outbreak amongst 774 financial institutions and banks across the US, UK, Singapore, France, Germany, Hong Kong and UAE, shows a maturity of API adoption and calls for the harmonisation of regulations between geographies.

Open banking is on the up in 2020 compared to 2019

The percentage of financial institutions looking to leverage open APIs has substantially increased in the US (+23%) and UK (+17%), while Singapore (+1%), France (-1%) and Germany (-4%) are relatively stagnant since our research in 2019.

Improvements in the overall customer experience accelerate API adoption

The US (45%), Hong Kong (42%) and France (36%) are leading the way in harvesting this benefit of open APIs (UAE: 32%; Germany: 20%; Singapore: 20%; UK: 19%). Overall, 41% of global banks say that they are 'still in the early stages of adoption', so it's difficult to measure the impact of open banking on their business so far.

Regulation is perceived to be tighter than a year ago and industry or government support is required to foster innovation

Almost half of those audited believe that regulations are holding back innovation. 48% state that 'regulation is too tight' - 10% more than 2019 - and the same percentage (48%) believe there is 'not enough government or industry support to foster innovation', particularly so in Hong Kong (62%), France (50%) and Singapore (49%), compared to 38% in the UK.

A call for harmonisation

83% of financial institutions and banks agree that regulations regarding fintech innovation should be harmonised across different geographies.

Cost of fintech research and development is of concern in some regions

Cost of R&D in the US, UAE and APAC regions is highlighted, more so than in the UK. (USA: 55%; Hong Kong: 55%; Singapore: 51%; UAE: 46%; France: 43%; Germany: 34%; UK: 33%).

"It's encouraging to see Open Banking maturing on a global scale, but it's still seen by many to be in its teenage years, with scope for creating even greater opportunities," said Simon Paris, CEO at Finastra. "We believe it will be the first step towards open finance which will see the next wave of innovation in financial services being created through collaboration on open platforms, like, using open APIs and open software solutions."

"Currently banks and technology vendors are rightly focused on business continuity and keeping their workforces safe," Paris continued. "We've also seen many of these firms moving with amazing pace to bring innovative solutions to market, with the help of technology, to support customers in this new environment. As we come through this situation together, we must endeavour to emerge stronger, and it will be interesting to see how open banking and collaboration accelerate when this outbreak ends."

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