Mastercard, Dwolla using open banking to pursue separate markets

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Consumers and businesses are increasingly looking for payment relationships that are digital, offer more than just point of sale technology, and are centralized with a single provider. To serve this need, Mastercard and Dwolla have separately launched tools that rely on open banking.

Open banking refers to banks or other financial institutions enabling third parties to access customer data to enable multiple financial and non-financial products through a single login on an opt-in basis. Dwolla and Mastercard, which have obvious roots in payments, are using this technology to broaden relationships with different customer segments — consumers in Mastercard's case, and business clients in Dwolla's.

"You have heard us say that we are on a path to diversify beyond cards at Mastercard," said Silvana Hernandez, the card network's executive vice president of product and engineering for North America.  "Open banking is one of those pillars of diversification." 

Mastercard's momentum

Mastercard last week launched Open Banking for Account Opening, a consumer-focused product offered through banks. 

Mastercard will provide issuers that adopt its new open banking product free access to the card network's account owner verification, account detail verification and account balance check services, covering Mastercard-branded consumer and small business debit cards or general-purpose reloadable consumer prepaid products. 

Card-issuing banks are a good source of data to enable opening banking, according to Beth Robertson, a managing director for Keynova Group. 

The primary strength that many issuing banks have in merchant servicing is that they can act as a one-stop shop — even when they are reselling third-party products, Robertson said.  "This can be a particular advantage for smaller firms that do not have the resources to assess and work with multiple organizations to support their complex financial servicing needs."

Mastercard's service, which is expected to be available during the first half of 2024, accommodates the needs of an increasingly digital consumer market. This audience may not be accustomed to opening bank accounts at a branch, or may not know their account information off the top of their head. 

"If they're using a mobile device it may be hard to enter all of that information manually," Hernandez said. "Open banking allows them to give permission for the [third party] to access their credentials." 

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Data sharing also provides an easier route for consumers to view their own information with less navigation. "The consumer can also check their balances easier before making a transaction, increasing the possibility of that transaction being successful," Hernandez said. 

Mastercard, which acquired open banking technology company Finicity in 2020, has used this and other acquisitions, alongside its own internal development, to forge a series of partnerships to expand services that don't rely on payment-processing revenue. The card network refers to open banking as a "connective tissue" that ties different services and partnerships together. 

There's a growing market of consumers who desire digital services, and this could lead to demand for open banking as a method to enable consumers to access new products. Mobile banking adoption among Gen Z consumers is rising at a rate that will expand U.S. users from 20.7 million in 2000 to 47.8 million in 2026, according to Insider Intelligence. 

Dwolla's developments

Dwolla is also using open banking to speed account opening for these types of mobile services. 

The firm last week launched open banking features, extending its account-to-account payment service to include instant account verification, balance checks and fraud mitigation. The deployment is aimed at mid to enterprise-sized businesses that use Dwolla's application programming interface to offer transfers between bank accounts to support supply-chain finance, procurement, business payments and B2C transactions. 

These transactions are complex for businesses, requiring different vendors, multiple APIs and technical integrations, Dwolla contends. The new open banking service follows Connect, a service Dwolla launched in 2023 that enables account-to-account payments. 

These product launches fit into a strategy at Dwolla to make it easier for mid-to-enterprise sized businesses to adopt digital payments. Under Dave Glaser, who became Dwolla's CEO in the fall of 2023, Dwolla is also working more to expand relationships with existing clients in a slower overall economy, where businesses may be looking to work with fewer technology or payment companies. 

"When you're in a period with a lot of startups, there is a lot of innovation happening all at once," said Glaser. "So startups focus on finding providers with value-added services to provide different functions." 

One of Dwolla's initial adopters of its open banking service is a buy now/pay later firm that Glaser did not identify. This BNPL client connects the consumer's and BNPL lender's bank accounts to execute the installment payments that repay the initial BNPL loan.   

"The company could have taken the time to build or add a whole new payment system, or build its own open banking system," Glaser said. By using an open banking connection, the BNPL lender connected with a single provider to support the entire transaction, he said. "Why build two connections when you only need to connect to one?"

Open banking is especially effective in opening accounts at multiple banks the payment company has agreements with, said Enrico Camerinelli, a strategic advisor at Datos Insights. 

"Open banking is also instrumental to expand financial services because the client's consented access to bank-account data enables the payment service provider to have a more reliable risk profile of that client," Camerinelli said, noting that the Mastercard deployment is specifically targeted to consumers, while Dwolla's is for business clients.

"Dwolla also associates open banking with embedded banking," Camerinelli said. Embedded banking generally refers to a process in which non-financial companies enable financial services through connections with third parties. 

"That's a valued proposition  given the access to multiple accounts," Camerinelli said.