Visa adds fintechs to create a network effect for open banking
Visa is adding more fintechs to a platform that puts the card network in the role of a network-agnostic payment technology company to support open banking.
Like Mastercard, which launched a set of open banking technologies in June, Visa’s vision is to make it easier for financial institutions to connect via APIs to merchants and regulated third-party payment service providers, a process many banks find challenging.
The European Union’s updated Payment Services Directive, or PSD2, facilitates bank account-based consumer payments to merchants as alternatives to credit cards. PSD2 creates new service providers known as trusted third parties, and requires banks to allow customers to share their data with these companies, typically via APIs.
“Participating in open banking will involve Visa taking our core strengths and applying them to this new world, including authentication, data analytics, and dispute management,” said Mark Nelsen, Visa’s senior vice president of open banking.
Visa plans to use its authentication and risk management technology to protect consumers, merchants and financial providers’ data and transactions, Nelsen said.
“Visa sees itself playing a network role by connecting parties together and providing a way for clients to offer additional services in open banking,” said Nelsen. “By building on our strengths and our open banking partners such as Plaid and TrueLayer, we can increase the relevance of Visa and our clients, while supporting consumers in new ways.”
Last month, London-based open banking API provider TrueLayer signed an agreement to join Visa’s network of open banking fintech partners. Visa participated in TrueLayer’s $35 million investment round, which closed in June and was led by Temasek and Tencent.
The investment in TrueLayer appears to be Visa’s response to Mastercard’s partnership with U.K.-based open banking API vendor Token.io, which is providing the bank API connectivity layer for Mastercard’s Open Banking Connect hub. The Mastercard platform provides trusted third-party service providers with a single, universal connection to financial institutions’ open banking interfaces.
“By facilitating growth of the ecosystem, Mastercard can help all participants — the FIs which hold the data, the fintechs which are building services using open banking, and the ultimate customers of those services — realize the opportunity at hand,” said Jim Wadsworth, Mastercard’s senior vice president of open banking.
TrueLayer, which offers open banking data and payments initiation APIs, has operations in the U.K., Australia, and continental Europe. In the U.K., where its clients include Revolut, TrueLayer reports that it handles 65% of open banking flows.
“We're committed to building a global network of partnerships to help grow the open banking economy globally, so our relationship with Visa is critical,” said Francesco Simoneschi, TrueLayer’s CEO.
In September 2019, Visa and Mastercard participated in a $250 million funding round in Plaid, a U.S. startup linking consumers’ bank accounts with fintech apps. Plaid launched a beta of its open banking technology in Europe.
“Our open banking initiative will begin in the U.K. as our first market,” said Nelsen. “But we plan to quickly roll out our platform and solutions around the world.”
Visa’s ultimate goal in its fintech partnerships is to act as a "network of networks" that connects payors and payees, regardless of which payment type and rail they use. Its acquisition of Earthport, which manages payment flows to and from banks worldwide, and the launch of Visa B2B Connect will help Visa widen its scope beyond VisaNet to other payment rails.
“Our network-agnostic approach means Visa will increasingly enable transactions that don’t necessarily originate or terminate on a payment card, but use banking rails and real-time payment schemes,” said Terry Angelos, senior vice president and head of global fintech at Visa.
Visa has a number of assets — such as its set of developer APIs for services such as Visa Direct, Visa B2B Connect, and Visa Checkout — that can help build services on top of different rails including real-time payments.
“For example, Visa’s Rambus acquisition allows it to extend tokenization services to real-time networks,” said Zilvinas Bareisis, senior analyst at Celent. “A core Visa strength is its know-how around governance and management of large networks such as setting rules and regulations, which should prove useful as open banking evolves.”
Visa is a member of B.yond, a European fintech consortium, which is developing a "bank in a box" platform. B.yond, whose members include U.K.-based e-money institution Modulr and Global Processing Services, is one of the European partners for Visa’s Fintech Fast Track program, which aims to speed up the process of integrating startups with VisaNet.
“The regional partners for our Fast Track program include issuer/processors, KYC compliance experts, and program managers who work with fintechs to help them onboard with Visa quickly,” Angelos said.
B.yond’s members take care of a fintech’s needs such as card manufacturing, app design, payment processing, and KYC compliance.
“Visa provides its card network, and is pivotal in the establishment of B.yond,” said Neil Harris, Global Processing Services’ chief commercial officer. “We’re using some of Visa’s developer APIs such as real-time fraud monitoring.”
New fintechs account for 55% of B.yond’s customers, with the remainder being established players.
“We have some well-known banks engaging with us, because they need a helping hand with open banking,” said Harris. “For many banks, open banking is very difficult to achieve because of their legacy systems, but Visa, with its global perspective, is able to help them with the challenge of open banking.”