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  1. Analysis
April 29, 2020

Mastercard, Visa line up fintech, open banking partnerships

By Douglas Blakey

Visa and Mastercard are expanding into multiple types of digital payments through alliances with fintechs, payments services companies, and open banking software vendors. Both see themselves as payments network-agnostic, as they build connectivity to multiple types of payments rails. They have a vision of facilitating the growth of open banking and opportunities for fintechs through partnerships and investments, Robin Arnfield reports

 

Both companies want to leverage their existing relationships with banks to provide connectivity between different parties in the open banking space just as they do in the cards industry. Their vision is to enable banks to connect via APIs to merchants and regulated third-party payment service providers in regions which have mandated open banking such as the EU with PSD2 and the UK. Other countries such as Australia, Canada, Mexico and Brazil are moving towards open banking, although currently there is no regulatory push towards open banking in the US.

Instead of seeing themselves as card companies, Visa and Mastercard now consider themselves to be  technology companies providing a ‘network of networks,’ supplying connectivity between their cards rails (VisaNet and Visa Direct, and the Mastercard network and Mastercard Send), bank payment networks such as ACH systems and SWIFT, and digital wallets.

In support of their strategy to expand into non-card payments, Visa acquired Earthport last year and launched the blockchain-based Visa Connect B2B payments network (https://www.electronicpaymentsinternational.com/news/visa-blockchain-b2b-payments-network/), while Mastercard bought Vocalink, Transfast, and Scandinavia-based Nets’ account-to-account payments operation. Through the combination of Earthport and VisaNet, Visa has the ability to push Visa Direct payments for its clients to the majority of the world’s bank accounts through a single connection, the firm says.

Investments and alliances

In January 2020, Visa announced the $5.3bn acquisition, subject to regulatory approval, of US-based Plaid, which uses APIs and screen-scraping to connect consumers’ bank accounts to fintech apps. For example, consumers linking their Venmo account to their bank account for cash-out transactions are verified by Plaid.

Last November, UK-based open banking API provider TrueLayer agreed to join Visa’s network of open banking fintech partners. Visa took part in TrueLayer’s $35 million funding round, which closed in June 2019. TrueLayer is developing a range of APIs including a Data API which allows companies to access their customers’ financial data, subject to their consent, and a Payments API enabling near instantaneous online payments. Francesco Simoneschi, TrueLayer’s CEO, said in a news release: “This relationship (with Visa) represents a huge step forward in the development of the open banking economy at a global scale.”

In January 2020, VGS received an undisclosed strategic investment from Visa. The data security company eliminates the need for fintechs to store sensitive data such as  account numbers and personally identifiable information (PII) by storing this information in its secure vaults.

This removes much of the fintechs’ data liability while reducing their risk exposure and compliance responsibility and enabling them to achieve certifications such as PCI, SOC2 (Service Operation Control 2), an audit of a company’s secure storage of customer data, CCPA (California Consumer Privacy Act), and GDPR.

“We can support any kind of sensitive data, although we’ve focused on the payments and financial technology sector,” says Peter Berg: VP of Business Development and strategy at VGS. “We provide the secure data storage equivalent of what Amazon offers with Amazon Web Services, so companies don’t need to store customer data such as credit cards or Social Security Numbers.”

Because VGS uses aliases, which are synthetic or tokenised versions of card numbers, its customers can issue credit cards without ever seeing a card number, and run background checks without needing to hold Social Security Numbers.

Visa is a member of B.yond, a European fintech consortium, which is developing a “bank in a box” platform for new entrants and whose members include UK-based e-money institution Modulr and Global Processing Services.

Modulr (https://www.electronicpaymentsinternational.com/news/modulr-joins-visa-network/) has joined Visa as a principal issuing member granting it access to VisaNet and enabling it to issue Visa cards without needing an intermediary bank. By partnering with Visa, Modulr hopes to expand its European customer base and launch consumer and business card capabilities for its clients.

In December 2019, Visa announced that TransferWise had joined its ecosystem of global remittance partners which includes Remitly, MoneyGram, and EMQ. These firms allow customers to send money to recipients’ debit cards in real-time via the Visa Direct services. “TransferWise is on a mission to move money around the world in a cost-efficient, quick, and transparent way,” Kristo Käärmann, TransferWise’s CEO, said in a news release. “Integrating Visa Direct eases the transfer process and brings us another step closer to achieving our mission.”

TransferWise is rolling out Visa Direct payouts across Europe in 2020. “Visa Direct is the main partnership with Visa that we’re focusing on, and we’re working hard on it,” says Lars Trunin, TransferWise’s Head of Product for GBP. “But open banking is definitely of interest for us. Another major partnership for us is with GoCardless, with whom we have launched cross-border direct debits.”

Last September, Revolut announced that it had chosen Visa as its main issuing partner for its expansion into 54 markets. Under the terms of the agreement, Revolut will primarily issue Visa-branded cards.

In June 2019, Mastercard launched its Open Banking Solutions platform, having invested in UK-based open banking software vendor Token.io, which provides the bank API connectivity layer for Mastercard’s Open Banking Connect hub. The Mastercard platform provides trusted third-party account information and payments initiation service providers with a single, universal connection to European banks’ open banking interfaces.

In addition to connectivity to multiple banks, Mastercard’s Open Banking Solutions platform offers dispute resolution and fraud prevention tools. As part of this platform, Mastercard is working with UK-based regtech Konsentus to verify that, when banks receive account information or transaction initiation requests from third parties, these entities are PSD2-compliant.

“It’s great to see big players such as Visa and Mastercard positioning themselves in the world of open banking,” says Stefano Vaccino, CEO of UK open banking software vendor Yapily. “This is fuelled by the demand for cheaper and smoother payments. Card payments are expensive for merchants to process and, with two-factor authentication being rolled out this year, as mandated by PSD2, paying by card will have an extra layer of friction.

This will cause a high barrier for retailers and their customers, driving adoption for open banking payments due to their being seamless and user-friendly. Open banking-powered payments will become a popular way to pay, bypassing card payments. This space will be disrupted hugely, and incumbents must innovate to remain relevant.”

Visa

For Visa, acquiring Plaid makes sense as the fintech works with many of Visa’s North American bank partners, and its ownership of the firm will presumably reassure banks which have been reluctant to accede to Plaid’s requests for account data.

Visa’s investment in TrueLayer is part of a strategy of partnering with the best players in open banking. TrueLayer’s focus is the UK and Europe although it has also entered the Australian market.

Visa’s view is that it can provide its experience in best practices, security, and management to the open banking ecosystem for its member banks worldwide.

By partnering with players such as TrueLayer and Plaid, Visa hopes to avoid a future where open banking APIs and regulations become fragmented and lack interoperability. Its ultimate goal is to commercialise its open banking technologies to its member banks.

“Partnerships with fintechs are important to Visa as it sees an opportunity to work with them to capture a share of the estimated $185tn in payment flows that still use cheques, ACHs and wire transfers,’ says Terry Angelos, Visa’s SVP and Head of Fintech.

“There is an estimated $18tn of cash payments that fintechs are converting into digital payments, for example through virtual cards. If we’re going to take a chunk of the $185trn, we need fintechs to create digital banks, wallets, remittance flows, and virtual card use cases. So we established the Visa Partner (partner.visa.com) and Fintech Fast Track (https://partner.visa.com/site/program/fintech-program.html) programs to facilitate this.”

Fast Track makes it easier for fintech start-ups to receive Visa licenses, access the Visa network, and issue Visa cards. “We have approved Visa partners who act as issuer-processors and work with fintechs to help them get to market,” says Angelos.

Very Good Security was one of the US launch partners for Fast Track in July 2019. Other US Fast Track partners include Marqeta, Galileo Financial Technologies, Netspend, and Green Dot. In Europe, B.yond is a Visa partner for Fast Track.

“We’ve had tremendous uptake of Fast Track since we launched the programme,” says Angelos. “The companies that apply to join Fast Track are either start-ups or existing businesses that are new to issuing cards and want to provide, for example, corporate cards for their clients. We have cut the time required to become a licensed Visa member from months to weeks, and fintechs can apply online on our Visa Partner site.”

The benefit for a global fintech such as Revolut of partnering with Visa is the ability to have a single Visa certification which caters for all the markets it wants to enter. “We can also help Revolut integrate with the local processing schemes in the markets it is targeting,” says Angelos. “Our single global Visa certification means fintechs don’t need separate certifications for each market they operate in.”

As part of the Visa Partner program, Visa provides links to its developer APIs to provide fintechs with access to its systems. “All our fintechs, when they interact with Visa, do so via APIs,” says Angelos. “Some of the APIs are through our partners and some are directly from Visa.” According to a February 2020 investor presentation, Visa currently has around 600 APIs and receives over 1 billion API calls a month.

Mastercard

“We’re open to working with start-ups,” says Jason Lane, EVP Market Development, Europe at Mastercard. “Eight out of ten European fintechs work with Mastercard, and what provides the consumer interface for these neo-banks and fintechs is their issuance of cards. For example, Revolut, N26, and Monzo have been partners of ours for a number of years.”

In 2018, Mastercard launched a formal programme, Mastercard Accelerate, under which its other fintech initiatives such as Start Path have been regrouped. “We acknowledged we had to do a better job at helping fintechs,” says Lane.

“We now have a one-stop shop to help fintechs, and work with other aggregators and payment service providers to do the heavy lifting. We established an Express Partner programme, which allows fintechs to start issuing cards in a number of weeks. In the past, this could have taken months.”

Mastercard sees its Open Banking Solutions platform as a way to help its European member banks to be ready for the advent of open banking and payments APIs. “We’re connected to some 4,700 banks across Europe,” says Lane. “Having piloted our open banking platform last year, we are now in rollout across Europe.”

In January 2020, Mastercard announced two partnerships with payments services companies to enable fintechs to rapidly offer prepaid cards and credit cards to their customers.

The first is with Marqeta, which has become a European certified processor with Mastercard and is working with the card network to help digital banks and fintechs go to market as well as to scale faster. Through the partnership, Mastercard’s European customers will gain access to Marqeta’s API-based platform, which is already available to US customers. Twisto, which offers a daily payments app linked to a card, is the first European customer to deploy Marqeta’s card processing capabilities. Marqeta says its offering enables Twisto, which operates in Eastern Europe, to roll out cards in new markets in a matter of days rather than several months.

“We partner with and process transactions for Visa and Mastercard in the US,” Ian Johnson, Marqeta’s Head of Europe, says “We process tens of millions of Mastercard transactions in the US, but only recently started with them in Europe. MasterCard has had a lot of success in the fintech space and is very focused on being able to get products to market faster on behalf of their clients.

The synergy with us is that we’re aiming to do  the same thing. Through our platform, we allow firms to build card products and get to market really quickly. For fintechs, that’s music to their ears, because they don’t want to get caught up in the bureaucracy of filling forms for Mastercard and they want to start building products.”

Johnson says Marqeta enables fintechs to securely and instantly issue cards into an app that can be used immediately, for example in the gig economy. “We do a lot of work in on-demand delivery in the US, where our clients have delivery drivers or other workers who have to be able to purchase goods on behalf of the firm, e.g. petrol, take-away meals, shopping,” he says.

“Using our card controls, our platform gives the issuer the comfort that there is very little risk of the delivery driver or shopper being able to spend money on anything other than their order and the place where the company intends them to.”

Secondly, Mastercard has partnered with CleverCards and EML to facilitate paytech innovation in Europe. CleverCards is a Dublin-based payments technology start-up, which enables any business to send digital Mastercards directly to the mobile wallet of a customer or employee by email, SMS, WhatsApp, or any messaging app. It offers a technology platform-as-a-service that enables businesses to deploy payment applications focused on improving instant customer payment experiences for everyone.

EML, which holds an Irish e-money license, is the first European prepaid card issuer and transaction processor to integrate with CleverCards, with its proprietary processing system providing CleverCards with a link to Mastercard’s tokenisation technology.

Working with Mastercard and EML, CleverCards plans to expand globally this year, taking on clients who want to quickly roll out B2C payment requirements such as customer and employee rewards, expenses and other consumer payouts.

In December 2019, Mastercard partnered with CleverCards and Appreciate Group to launch Europe’s first fully digital gift card. In November 2019, EML Payments agreed to buy Prepaid Financial Services (PFS) for an upfront payment of A$423m.

“We’ve created a payment platform enabling anybody anywhere in the world to send, receive, and pay instantly at any time, using cellphones and mobile networks,” says Kealan Lennon, CleverCards’ CEO. “Our goal is to enable the banks, rather than compete with them like Revolut is doing.”

Lennon says consumers can use CleverCards to send a digital Mastercard via SMS or any messaging app, which the recipient then adds to Google Pay, Samsung Pay, or Apple Pay, and uses for purchases. “We’re not overly focused on the P2P space,” he says. “The bigger market, where there is a lot of friction, is business-to-consumer payments such as insurance refunds, or governments making pension payments.”

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