Fintech

Mastercard Adds More Partners to Drive Open Banking | PaymentsSource

Published

6 months ago

22 July, 2024

FinCrypt Staff

Mastercard Adds More Partners to Drive Open Banking | PaymentsSource

Mastercard has launched the latest class for its accelerator.

Lionel Ng/Bloomberg

MasterCard is grooming a new crop of fintech companies as potential partners to help them keep pace request for faster, safer payments.

The network of cards recently named nine international fintech startups to its Start Path Open Banking and Embedded Finance accelerator program. Three are based in the United States: Link Money, a San Francisco-based bank-to-pay company for merchants; Payitoff, a New York-based debt management provider; and Quiltt, a New York and Dallas-based software company that helps simplify open banking, a Key strategy for Mastercard.

The goal of this program is to enable new uses for open banking, which allows third parties to access bank data, and in turn support a rise in alternative payment technology, such as digital wallets, which allow direct debits from a consumer’s bank account. Last year, $57 billion was paid through open banking globally, according to Statisticswhich predicts that the figure will rise to $580 billion in 2027.

According to Mastercard, with the growing demand for this form of payment, it is essential to offer a seamless experience while protecting sensitive account information.

“Consumers have higher expectations for simplicity, personalization and protection,” said Sabrina Tharani, senior vice president of fintech and venture partnerships at Mastercard. “We’re in this renaissance where we’re trying to figure out how to best leverage these new technologies to deliver better, more inclusive experiences for consumers.”

The problem is that creating simple and intuitive open banking products is not so simple. Old payment technologies do not always mix with new ones. 59% of bankers surveyed believed that legacy infrastructure was a barrier to open banking, according to Forbes Insights and Thinking Machine.

Additionally, many of these outdated technologies use a process called “screen scraping” to collect banking data. With this practice, the bank does not control what data is shared, leaving it vulnerable to phishing attacks and other threats. While supporters of a Consumer Financial Protection Bureau proposal hope to ban screen scrapingFintechs operating in open banking are working to find more secure methods of data collection.

Most of these problems stem from the lack of regulation of open banking in the United States. Gareth Lodge, principal payments analyst at London-based global research firm Celent, said that while it may seem counterintuitive, regulation is actually the reason open banking has grown faster in Europe and the United Kingdom.

“While regulation is rarely welcomed by banks, it has had the benefit here of at least imposing standards, rules, etc., that are the foundation for what comes next,” Lodge said. “The U.S. has many examples of open banking and embedded finance; the question is whether there would be more of them and whether growth would be even faster with regulation.”

Visa has its own ongoing efforts to work with and invest in startups. Visa runs a Fintech Fast Track Program for fintechs of all sizes; an Inclusive Fintech Accelerator program to address challenges faced by diverse founders; and has accelerator programs in the Asia Pacific and Central Europe, Middle East and Africa regions, the company said in an email. It also launched a $100 million initiative last year, focused on companies working with generative artificial intelligenceVisa did not provide further comment on this article.

Partnering with fintechs is a good way to drive innovation in the U.S. open banking market, said Kieran Hines, principal analyst at Celent. The practice could give card networks an edge over other financial institutions, he said.

“While many banks are actively looking to use open banking to enhance their offerings, partnering with fintechs that are targeting very specific customer needs is an effective way to further increase Mastercard’s popularity and demonstrate the variety of scenarios where open banking can generate value,” Hines said.

Open Banking Startup Path provides access to Mastercard’s network of banks, merchants and partners around the world. Each company is also assigned a Mastercard sponsor who can help facilitate networking opportunities and direct them to resources.

Mark Bechhofer, Quiltt’s chief operating officer and co-founder, said his company hopes to integrate data from Finicity, a Mastercard open banking platform acquired in 2020, to help other organizations use it as well. It’s critical that open-banking fintechs work together and share data to improve the consumer experience, Bechhofer said.

“It takes a tremendous amount of engineering to recognize Starbucks transactions from thousands of different stores,” Bechhofer said. “Then you have all these services that do that, and then we bundle them together with their massive downstream databases so the consumer can understand exactly what the charge is for.”

LinkMoney is also keen to work more closely with Mastercard’s Finicity. The bank-based payments company has been working with Mastercard since the startup was founded in 2021 to help merchants accept payments through open banking.

“We don’t have the same access to real-time money transfer infrastructure that exists in other markets, like Europe,” said Eric Shoykhet, co-founder of Link Financial Technologies, LinkMoney’s parent company. “That said, the U.S. has a very high payment processing cost market, and there’s a lot of demand from merchants for cheaper payment methods.”

Businesses aren’t the only ones using open-banking technology to cut costs. Bobby Matson, founder of Payitoff, says consumers, especially those struggling with student loans, need help managing their finances.

According to a study by the American Institute of Management and Technology (AOMS), Americans had a total debt of $17.5 trillion last year. Federal Reserve Bank of New YorkThe average adult had $66,772 in debt, with student loans and credit card debt being the top issues.

Payitoff helps consumers pay down their debts by using open banking tools to connect to other resources. An individual with credit card debt could potentially receive a list of personal loans or balance transfer credit cards tailored to their financial situation. And student loan borrowers could receive information about refinancing options or be referred to federal SAVE plans.

Payitoff plans to use Mastercard Open Banking resources to continue developing its debit instruments, Matson said. The company is also exploring the possibility of creating a new product with Mastercard that would “combine two products to solve a workplace problem,” Matson said, adding that more information on that project and other potential collaborations could be released in the coming months.

“I think there’s still a lot of opportunity to be discovered,” Matson said. “We’ve started with a lot of student use cases and holistic debt management opportunities, but there’s a lot more that we could explore in terms of helping them unlock financial decisions for their customers.”

These fintechs will partner with Mastercard Open Banking for the next four months, and another accelerator is already on the way. Mastercard will accept applications for Start Path Emerging Fintech, an accelerator aimed at addressing sustainability, until July 19, according to a Posts on LinkedIn by Ellen Jackowski, Chief Sustainability Officer and Executive Vice President, Mastercard.

“The program welcomes innovative startups in the fields of payments and commerce, as well as those developing solutions at the intersection of fintech and sustainability, cybersecurity, healthcare, retail, gaming and more,” Jackowski wrote.

Start Path is not a traditional accelerator because Mastercard does not purchase shares in these companies up front. The card network will decide potential investments based on the fintechs’ performance during the program, as determined by their sponsor. Tharani, a member of American Banker Most Influential Women in Subsequent Payments honorees for 2023, Mastercard said it holds stakes in less than 50% of the companies participating in Smart Path programs.

“That’s not our primary focus,” Tharani said. “We’re really focused on signing these tangible agreements on commercial products, rather than investing.”

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

6 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

6 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

6 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

Source

Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

6 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”