Open banking’s success in the United States — as with any ecosystem — will hinge on several factors, none guaranteed.
But, with lessons learned from abroad, and with an incrementally clearer picture of regulation and what consumers want, a few guideposts can be set along the way.
The goal is to make it easier for consumers to essentially own their financial data, allow that data to be shared with third parties, and ostensibly reward the companies that serve their needs, while refusing permissioned data to move toward the companies that don’t meet those needs.
The Personal Financial Data Rights rule sets the stage for that data portability and allows consumers to stay within the relationship forged with their banks. It also takes an almost a la carte approach, enabled by API connectivity, to financial products and services on offer from other providers, including FinTechs.
Many aspects are still being hammered out, especially on the regulatory front. The buildout of the regulatory framework governing some of the technical details and best practices for data protection and privacy remain under discussion and are somewhat in flux. Whereas the United Kingdom’s launch of open banking in 2017 was largely a top-down approach, the standards and industry guidelines are being done in the U.S. via a consensus approach.
The Consumer Financial Protection Bureau said the process on standard settings should be “open to all interested parties, including public interest groups, app developers, and a broad range of financial firms with a stake in open banking.” The pool of interested parties also can, and will, include consumers, and the CFPB can revoke the recognition of standard setters with a maximum tenure of five years.
It remains to be seen if the consensus approach results in fruitful dialogue and agreement on some of the key tenets of open banking or if this may be a case of too many cooks in the kitchen, delaying the actual emergence of standards.
The PYMNTS Intelligence report “Consumer Sentiment About Open Banking Payments,” a collaboration with Trustly, revealed that roughly half of consumers are willing to use open banking payments for at least one type of expense, including monthly bills, groceries or subscriptions.
Only about 11% of consumers have used open banking payments in the past year. Of those consumers who have experience using open banking payments, 82% said they have been satisfied with their initial forays into the open banking realm.
But for the consumers who have not used open banking, or have no interest in doing so, 56% said that they have concerns about data security and trust. That trust hinges on knowing that their data is being used for explicitly stated purposes and that permission can be revoked successfully.
Considering the trust factors, it may be the banks that are the early beneficiaries of open banking’s evolution in the U.S.
The data showed that 43% of consumers trust their banks or credit unions to provide open banking services and related products. About 30% trust their primary financial institutions to deliver the goods.
Pay-by-bank, where money is moved directly between accounts at different banks without intermediaries, may be an early use case favored by consumers as they gain a holistic view of their day-to-day finances. This option allows customers to pay for goods and services directly without additional charges in the mix.
APIs made available through open banking allow greater connectivity to instant payments conduits. The direct-to-account payments can be made directly from a consumer’s bank to a merchant’s bank, typically using real-time rails.
Look for the banks to get increasingly on board here, as they use artificial intelligence and advanced analytics (with FinTechs) to help battle the fraudsters. PYMNTS Intelligence data showed that 46% of financial institutions said the risks of open banking outweigh the benefits, tied chiefly to fraud. However, 81% of banks said they can offer secure real-time payments.
The U.K. may be among the most instructive markets here, giving some indication of what’s to come in the U.S. There have been some indications that open banking has been slower to take root than many had expected. Authorized push payment fraud remains a threat, equal to 239 million British pounds (about $306 million) through the first half of last year.
The growth rates in the roster of open banking providers slowed from 131% in 2020, to 1% in 2022, and declined 6% through the midpoint of 2023.
However, Stripe last month debuted an open banking-powered payment method and faster manual payouts in the U.K. Businesses on Stripe will be the first to access the payment method, Pay by Bank.
In March, Swedish payments FinTech Klarna began offering open banking-powered settlements in the U.K. Through that initiative, consumers can pay Klarna directly from their bank account instead of using a debit card.
The lessons here are that caution reigns among at least some banks and FinTechs, but use cases will win out.
The middle market continues to draw the attention of payments and banking companies, with Mastercard announcing a package of digital and financial management tools aimed at that segment on Tuesday (Feb. 18).
Called the Mastercard Mid-Market Accelerator, the suite of solutions is aimed at companies with annual revenues between $10 million and $100 million or about 50-250 employees. It will assist banks and FinTechs in catering to their lower middle-market clients. The offering, which will initially be available in the U.S. before scaling globally, combines Mastercard’s digital payment technology and value-added services with features from partners that offer transparency, automation and security.
According to Mastercard’s Jane Prokop, EVP and global head of small and medium-sized enterprises, the Accelerator will provide a flexible mix of solutions that financial providers can customize to meet the needs of middle-market customers.
Mastercard is collaborating with issuers such as Citizens and FinTech providers such as Navan (expense management) and Trovata (cash flow management). The new Mastercard business card is part of the middle-market package and offers a selection of Mastercard card benefits from existing small business and commercial card programs, as well as new rewards. The card is available in physical and virtual formats and will include security enhancements such as ID Theft Protection, HealthLock, and Zero Liability Protection.
In an interview with PYMNTS, Prokop said that middle-market companies face unique challenges that neither small businesses nor large corporations encounter to the same degree. While small businesses benefit from simplified financial products and large corporations have access to highly customized solutions, middle-market firms frequently struggle with access to capital, fragmented banking relationships, and outdated underwriting practices that do not reflect their rapid growth.
“The lack of access to the right kind of capital to grow the business is a huge pain point in the middle market,” Prokop said. “They need more complex underwriting because they often work with multiple bank accounts, creating a fragmented view of their financial activity.”
Mastercard research puts the average middle-market company growth rate in its network at 12% in 2024. That clip means that middle-market businesses often find that traditional underwriting approaches fail to capture their current trajectory, leading to a lag in access to necessary funding. Additionally, many still rely on manual processes, such as invoicing and reconciliations, which limit their operational efficiency.
According to Prokop, and featured in the Accelerator, a key component of Mastercard’s strategy to better serve this market is the adoption of virtual cards. Despite their advantages in security and expense control, virtual card usage has not yet reached the levels that major financial institutions would like to see. Prokop highlighted two primary benefits: secure supplier payments and delegated spending control.
“With a virtual card, you’re providing a one-time number that cannot be reused. That’s a game-changer in terms of security,” she said. Additionally, for companies where business owners may still carry personal liability on a corporate credit card, virtual cards offer a secure way to delegate spending to employees and contractors without exposure to fraud or mismanagement.
PYMNTS Intelligence data shows virtual cards offer a versatile and flexible cash flow option that company finance departments can easily track. However, the data shows just 3.3% of growth corporates in North America use virtual cards.
Prokop stressed that Mastercard’s middle-market initiative places issuers at the center of the experience. By integrating FinTech partners with financial institutions, Mastercard aims to create a more robust suite of offerings that address mid-market needs like cash flow management and expense tracking.
“This isn’t just about theoretical improvements,” Prokop said. “We’ve been working closely with issuers and middle-market companies for over 18 months to design solutions based on their pain points.”
The accelerator ensures that companies can access these services directly through their existing banking relationships, streamlining adoption and making it easier for issuers to provide tailored solutions. This announcement also aligns with Mastercard’s broader partnership strategy, which is rooted in collaboration between traditional financial institutions and FinTechs to create more effective financial ecosystems.
“We look to pair up parties in ways that allow them to serve the middle market more holistically,” Prokop said. This approach helps banks graduate businesses seamlessly from small business solutions into middle-market services without losing customer relationships, she said, adding that scalability and personalization remain at the core of Mastercard’s vision for this segment. By leveraging richer data insights, issuers can better understand customer needs and deliver more tailored financial products.
“Personalization starts with data,” Prokop said. “Many middle-market companies struggle to get a holistic view of their own financial standing. By making this information more accessible, we empower both companies and their financial providers to make more informed decisions.”
Ultimately, Mastercard’s expansion in this space is not just about refining its card offerings but about evolving beyond cards altogether.
“Providing solutions that go beyond the card is really core to our vision,” Prokop said. “We’re focused on delivering a full range of financial and payment solutions that help our partners and their customers succeed in an increasingly digital world.”