Page 26 - GS210502_flipbook

CoverStory

then collects transaction data by logging into digital cus- Baldwin said the card brands see the writing on the
tomer account portals, a process known as screen scrap- wall: open banking could drain volumes from their net-
ing. But because screen scraping occurs without coordi- works by facilitating alternatives, like buy-now pay-later,
nation with the involved financial institutions, it can be through fast credit checking and funding options. "This is
fraught with problems. Service providers often have to fix certainly impacting card issuers," he said. "But it's impact-
connectivity issues resulting from web portal updates and ing the card networks, too," as retailers seek alternatives to
downtime, and the data isn't always up-to-date. "APIs are driving sales without driving up interchange costs.
much preferable to screen scraping," Wetherington said.
"Embedding payments is the most prevalent use case for
JHA has built a software development kit, the Banno Digi- open banking today," Wetherington said. He cited an anal-
tal Toolkit, that integrates with Finicity, an open banking ysis by Simon Torrance Analysis and Bain Capital Ven-
company owned by Mastercard that enables community tures, which projected that 40 percent of payments could
financial institution customers using the company's Banno move to an embedded finance model by 2030.
Digital Platform to deliver a "holistic financial experience"
to consumers through secure API access to third parties. The trend is already apparent in Europe. London-based
More than 400 community banks and credit unions are on GoCardless, for example, just introduced Instant Bank
the Banno platform, and 20 to 30 are being added to the Pay, describing it as a "first step" in its "open banking strat-
platform every month, according to Wetherington. egy." GoCardless, with about 60,000 merchants, claims it
can slash by 56 percent payment acceptance costs for re-
"We can now tie our financial institutions' reliability and curring and one-off payments using bank debit schemes,
security to the open banking ecosystem in ways that put like ACH debit. But speed of authorization has always
the accountholder in the driver's seat," Wetherington said, been a drawback, noted Hiroko Takeuchi, the company's
adding that this will foster competition not just with fin- co-founder. Open banking resolves this shortcoming by
techs, but also with large national banks. supporting instant confirmation of authorization for one-
off payments, like topping up an account outside a cus-
Wetherington pointed to a partnership between Citibank tomer's regular payment schedule.
and Google that allows consumers to open digital check-
ing and savings accounts via Google Pay. Citi also has "By enabling businesses to take any kind of payment
partnered with the ecommerce payment processing plat- through GoCardless, we can challenge the dominance of
form Stripe to support business banking services for Stripe cards and move beyond collecting subscriptions, invoices
merchants. "Helping community banks to become the cen- and installments," Takeuchi said. "The launch of this open
ter of the [customer] relationship is the endgame," he said. banking feature means we can now serve any merchant,
regardless of whether they have an ongoing or one-off re-
Steve Smith, head of global open banking at Mastercard, lationship with their customers."
stated, "At its core, open banking is a philosophy centered
on empowering consumers – as a result, it elevates the po- Volt, also based in London, offers an open payments plat-
sition of the financial institution providing the access." form that's helping European merchants bypass the card
networks with real-time account-to-account payments.
Challenging card networks Tom Greenwood, the company's CEO, penned an article,
In 2020, Mastercard purchased Finicity for $825 million to published by the fintech news site Finextra in March
advance its open banking strategy. Finicity is a founding 2021, that discussed how open banking offers merchants
member of the Financial Data Exchange, a nonprofit dedi- a chance "to push back" against rising card interchange.
cated to unifying the financial services industry around And he suggested account-based instant payments mech-
common, interoperable and royalty-free standards for se- anisms could eventually displace card-based payment
curely accessing consumer-permissioned financial data. schemes, particularly for ecommerce.
FDX counts 186 active members worldwide, including
JHA, Fiserv, The Clearing House, Visa, Intuit, PayPal and "Where historically we have relied on Visa and Master-
Plaid. card as the backbone for global ecommerce, the future is
different," Greenwood wrote. "The new spine is instant,
Visa attempted to make a similar play through a planned global, interoperable and account-to-account."
$5.3 billion acquisition of Plaid, which has built a compet-
ing open banking platform favored by mobile payment Wetherington said JHA's partnership with Finicity will
service providers, like Square Cash and Venmo. But Visa's provide the technology muscle community financial in-
plan was scuttled by the Department of Justice, which stitutions need to compete with fintechs that might oth-
challenged the acquisition on grounds that Visa's real in- erwise siphon off banks' payment activities and revenues.
tention was to stop Plaid from building a debit network
that would challenge Visa' business. In a June 2019 report, Aite Group encouraged financial in-
stitutions to move to open APIs as a way to monetize their

26