Mastercard adds open-banking partners as it preps for CFPB rules

Daniel Acker/Bloomberg

Mastercard is pushing harder into the market for open banking, even as the Consumer Financial Protection Bureau is starting to weigh in on this market.

Open banking refers to sharing banking, payments and other data between banks and third parties through application programming interfaces. That sharing enables consumers to access more products from other providers without having to establish distinct relationships with the third parties. 

The card network in the past few days has announced partnerships involving merchant services firm FIS, buy now/pay later lender Zip, JPMorgan Chase and Verizon, helping to support identity verification, credit risk and other services. At nearly the same time, the Consumer Financial Protection Bureau has released its proposed rules for open banking that would give consumers more control over their data and restrict how third parties use customer information.

"Consumers and businesses own their data; they should control it and benefit from its use," said Jess Turner, executive vice president of open banking at Mastercard, adding that Mastercard is reviewing the proposed CFPB regulations and believes the bureau should strike a balance by defining consumer data ownership without creating undue burdens for industry participants. 

"Our position in the U.S. open-banking industry allows us to work with our customers and partners to enhance secure data-sharing methods as APIs become more available," Turner said.

Mastercard's open-banking strategy

While the CFPB envisions open banking as a way of "leveling the field" for small financial institutions, Mastercard views its role as a matchmaker for firms that want to use open banking. 

"We want to be the intermediary between the banks and the third parties, which could also be other banks," Turner said. "With transactions such as billing and lending, the experience is still not as good as it could be." 

Worldpay, a unit of FIS, will enable consumers to "permission" their data to be shared between parties in Mastercard's open-banking network to pay bills directly from their bank accounts. 

The card network is enabling these payments without the user typing in routing and account numbers for each transaction. And Worldpay will also use Mastercard's account-owner verification as part of merchant onboarding. 

The partnership could boost Worldpay's strategy to add more payments automation. FIS is in the process of partially separating into two businesses, with FIS managing bank technology and Worldpay developing merchant services. FIS originally planned to spin off Worldpay as a separate company, but in July decided to maintain 45% of Worldpay, selling the rest to private equity firm GTCR. FIS said the sale to GTCR, expected to close in early 2024, will free up capital for Worldpay to speed payments research and development. 

Mastercard's partnership with Zip will enable fast underwriting for Zip loans in an effort to produce lending terms at the point of sale. BNPL fintechs worldwide are attempting to recover from a market slump that followed their fast expansion during the pandemic. The Australia-based Zip in the past year agreed to acquire BNPL fintech Sezzle, then called off the merger, citing market conditions. 

Regulation and compliance

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Worldpay and Zip did not provide comment for this story. Mastercard also last week partnered with JPMorgan Chase, with the bank using Mastercard's open-banking technology to offer consumers the option to pay rent, utilities and other bills directly from their bank accounts. Verizon will test the product, which also uses biometrics and other bank authentication tools. 

"Trust is paramount to open banking. In any digital journey, a first step has to be determining who you say you are," said Turner.  "You also want to know that the money will clear when you take a payment.

Building scale

Open banking grew out of the PSD2 regulatory guidance in Europe and has spread internationally as a way for banks to expand their products by linking to outside providers, yet maintain a favorable position with their customers as the enrolling party. 

BNY Mellon, for example, in September launched Bankify, which uses open banking to enable companies to send and receive payments directly from bank accounts. These payments typically are utilities or subscriptions, and open banking enables the different parties in these transactions to access bank accounts more easily, since one account is a common point of access. 

Mastercard's open-banking program combines its traditional network and technology connected to Finicity, a data technology company Mastercard acquired in 2020. 

Mastercard in late 2022 added its open-banking platform to Mastercard's Engage network, which includes Mastercard partners that sell payments and other merchant services. This is designed to make it easier for banks to connect with firms such as Dwolla, Link Financial, Nova Credit and Loan Pro, including payments technology, marketing services and small-business lending. 

Mastercard has about 3.2 billion card accounts and more than 100 million merchant locations. Visa has 44 million merchant locations, 4.2 billion card accounts and both Mastercard and Visa work with more than 14,000 issuers globally. 

Visa's open-banking strategy was fueled in part by its 2021 acquisition of Tink, a technology firm with a model similar to Finicity. And like Mastercard, Visa has built an open-banking business through a global network of partnerships that help its issuing banks locate and connect to third parties. These partnerships also boost Visa's "network of networks" product diversification. Visa did not provide comment for this article. 

"The scale is helpful in building a presence in open banking," said Daniel Keyes, a senior analyst at Javelin Strategy & Research. "Having all of these relationships provides touchpoints that allow Mastercard to be a major open-banking player." 

Mastercard's size could also help it comply with potential regulations for open banking, or offer compliance as a service, he said.  

"Companies with scale like Mastercard or other large companies aren't trying to break rules, so having a consistent standard makes compliance easier," Keyes said.  

The CFPB's potential regulations would mandate banks and other companies that offer checking accounts, payment cards and digital wallets to offer consumers the right to share data with other providers. These providers would not be able to sell that data or analyze and use it for marketing, according to the CFPB. 

"The CFPB rules point toward more consistency, more of a standard," Keyes said. "If you're in a network, you want all of the pieces that you are working with playing by the same rules."