Mastercard's technology diversification strategy has resulted in a handful of product rollouts in just the past few weeks. But there's another less visible strategy that aims to tie different projects together and ease access to the card brand's array of networks.
Open banking, which refers to data-sharing among financial institutions to deliver a wider range of products at a faster speed, is playing an increasing role in enabling Mastercard to develop and deploy products that don't rely directly on fees from card payments.
"Open banking is like a fabric that's a connecting tissue over parts of our business," said Craig Vosburg, chief product officer at Mastercard.
Vosburg, who has worked at Mastercard for 17 years and became CPO in 2021, is responsible for a large swath of Mastercard's strategy to provide value-added services. This includes marshaling resources from a series of acquisitions — adding real-time processing from Vocalink; cross-border payments via Transfast; bill payment through its Transactis unit; and open banking via Finicity. Vosburg also helps lead Mastercard Foundry and other development initiatives that aim to sell technology and services adjacent to payments.
Mastercard is focused on areas such as blockchain-enabled services, open development and authentication, Vosburg said. It is also developing partnerships to streamline these offerings.
"Open banking can validate the existence of an account, the availability of funds and insight into balances based on cash flow over the course of a period of time such as a month," Vosburg said. "That can inform the strategy of a biller or a merchant to enable payments directly between accounts rather than a check, for example."
Mastercard recently entered a partnership with U.K. banks to combat real-time payment fraud using artificial intelligence, a subscription management tool that connects consumers and their bank accounts to service providers through an application programming interface, and a multi-token network for third parties to support digital assets. More releases like this are on the way, according to Vosburg.
Mastercard will also focus on tokenization, which refers to replacing card numbers with substitute identifiers to shield a transaction or authenticate users on either end of a payment. This can enable bank and fintech partners to expand support for cross-border transactions. That includes reaching contractors and gig economy workers in more markets.
Other initiatives include expanding the use of virtual cards for travel booking and payments, growing account-to-account payments and new uses for real-time processing when FedNow is introduced later this month.
Open banking also supports Mastercard Installments, the card network's buy now/pay later product, and facilitates Mastercard partnerships that connect banks with third parties such as fintechs.
The consumers and businesses that use these products will benefit from digital access to account and transaction information, Vosburg said. While open banking is often associated with fintechs, it is available to banks and all financial institutions that engage with consumers, he said. "Once a customer consents to use their information, there's a variety of ways that can be used."
Open banking is not a product, though there are products and services that enable these kinds of banking services, said Aaron Press, research directly for worldwide payment strategies at IDC.
"At the most basic level, open banking is about exposing bank data and services via APIs for other organizations to leverage, and products can be built that take advantage of that data availability," Press said, adding that he recently attended a meeting at Mastercard where the card network focused heavily on open banking. "The APIs and the data behind them could be considered a product, as could a service that leverages those APIs to combine that data in a useful way."
Visa also has an extensive open banking strategy and has used the concept to forge dozens of partnerships to expand its product line. Visa additionally owns Tink, a financial data company that serves a function at Visa similar to the role Finicity plays at Mastercard.
Open banking initially grew out of PSD2, which required banks operating in the European Union to share data with outside parties. While U.S. regulations governing open banking are still in development, the concept has expanded to the U.S. and other countries via market forces. U.S. banks were initially opposed to open banking, but have warmed to the concept as a way to expand services as more fintechs enter the financial services market.
"It's a competitive dynamic," Vosburg said. "Customers are seeing the benefit of having access to added services, or cheap payments or being able to access brokerage services or online trading or digital mortgage services."
Prior to open banking, customers had little choice but to go with a bank account that paid a low, or no, interest rate, but open banking has made things more competitive, said Aaron McPherson, principal at AFM Consulting.
"Bringing it back to Mastercard, it clearly sees opportunities to service nonbanks for things like fund transfers, risk management and cross-border payments," McPherson said. "The concepts and tech behind open banking are more of a utility, but one with clear product implications that are very disruptive to banks. As always, the choice is to disrupt oneself or be disrupted."