Dwolla, sensing demand for embedded payments, preps for the year ahead

One potential benefit for open banking and embedded payments is to speed up payment automation at businesses that are under pressure to streamline operations — and the fintech Dwolla plans to make a major push in the coming months to address this need.   

"As companies are tightening in the next year, they're thinking more about their digital strategies, and what strategies will have staying power," said Dave Glaser, chief operating officer at Dwolla, which has made several recent moves to enhance its embedded payments and open banking technology. 

Embedded payments generally means the use of a single payment registration for repeated use. It's related to open banking, which uses data-sharing, often through application programming interfaces, to allow the payment account and corresponding credentials to access more services.

Dwolla supports connections to the ACH Network, and the corresponding RTP instant settlement system. Real-time processing is considered important to embedded finance since quick settlement can help users access multiple products through a single payment relationship. "The companies will be able to embed more services on top of real-time processing," Glaser said. 

Payment companies are competing to reach business clients that face growing economic challenges, with a sales pitch focused on automation as a path to fiscal health. NMI, for example, has made a series of acquisitions and partnerships to speed onboarding for new merchants; while other payment companies such as Revolut and Adyen have improved point-of-sale technology for clients that want to sell online and in stores.  

Dwolla's plan includes building on its open banking program. Dwolla late in 2022 enhanced security for its Secure Exchange product, an open banking service Dwolla launched earlier last year. Dwolla additionally is part of a Mastercard open banking partner network that includes companies that provide specific expertise. Dwolla, for example, offers payments, while companies like LoanPro and Nova credit provide small-business lending for Mastercard's network. 

Dwolla has also simplified its APIs through a product called Drop-In Components, which removes thousands of lines of code, allowing companies or developers that don't have technical experience to use the APIs to connect to Dwolla's payments products. 

Payments

Mastercard works to become an open banking matchmaker

July 18, 2022 10:27 AM

"Businesses are going to want to disrupt themselves. A lot of companies are still using paper checks," Glaser said, betting that lingering adherence to paper will fall by the wayside in favor of faster processing. "They're going to want to be more competitive."

Financial institutions and payment firms are increasingly considering how to use open banking, and efforts to regulate the practice are advancing. 

And there is data that suggests heightened demand for open banking. NInety-nine percent of financial institutions consider open banking a "must have" or "important," according to new research from Finastra. "It is important for payments companies to embrace embedded finance technology as we enter these uncertain times," said Jeff Manghillis, lead client partner for banking as a service for Finastra. "Consumers and merchants will be increasingly selective as to where to spend their limited resources."

The portion of financial institutions that report open banking as a "must have" is 48%, up from 38% a year ago, said Finastra, which polled 758 financial services executives. And 85% of financial professionals say open banking is making the industry more collaborative, suggesting the potential for more partnerships between banks and fintechs. 

"Data is king, and people want to own their data," said Sandy Fliderman, chief technology officer at Industry Fintech, a consultancy. "That is now turning to all your payment and financial data. The younger generation is keener on transparency and openness with things like their own information, and with open banking and data being transferable, you will be able to understand better and report on your financial self."

Companies need to take this approach and build well-established data privacy, security protocols, open APIs, and other technologies to take advantage of this — or risk missing a new generation of business coming in the next ten years, Fliderman said.

The question of whether taking advantage of open banking or offering embedded services is vital or not is a competitive/strategic one, but why it should be considered, according to Kieran Hines, a senior analyst at Celent's banking practice. 

"Ultimately it's all about how you can leverage these opportunities to deliver greater customer value," Hines said. In the case of small business and corporate customers, for example, they will pay for service enhancements such as being able to more easily access their account data or initiate payments from their ERP or treasury management systems, according to Hines. 

Embedded payments and other banking services are becoming an increasingly important topic, and that's fundamentally because customers appreciate being able to streamline and otherwise improve their processes and workflows, according to Hines, who added there are also opportunities for the payments industry in open banking. 

"Using open banking for account confirmation can improve security and reduce errors as well as being a more elegant solution than sending a test or micro payment, or checking an account balance before initiating or potentially accepting a payment," Hines said.