Open Banking

In recent years open banking has become associated with the digitization and transformation of the financial services sector. New regulations have been one of the major drivers, starting in Europe before quickly spreading around the world.

Open Banking has the potential to accelerate the quality, competition, and distribution of financial services for both individuals and business. On the heels of milestone acquisitions by Mastercard and Visa of Finicity and Plaid respectively, fintechs are hurrying to build financial data rails across African FIs and beyond.

Which regulatory frameworks are enjoying the most success? What are the unique challenges in establishing financial data connectivity on the continent? Who will be the next Plaid of Africa? Find out by registering for the CLA’s Global Open Banking panel on October 15, 2020.

Below is a look at the current state of open banking around the world:

Also, next month our Founder & CEO Hamed Arbabi will be joining Microsoft and Payments Canada to discuss the current state of open banking in Canada and what the future holds. Register now for the panel discussion and learn more about our open banking payments solution which allows you to accept instant bank account verified payments, improve funding speed and reduce NSFs with sufficient account balance visibility.

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In a recent infographic we looked at some of the open banking gains seen around the world including an expected growth rate of 24.4% by 2026 reaching $43.1 billion in value. Lets look at North American companies and organizations who are helping move open banking forward to create a consumer friendly future for financial data that is secure and helps deliver exceptional products and services.

We’ve listed everyone below that’s included in the graphic above for your browsing convenience. Want to be included in VoPay’s next ‘Open Banking Movers & Shakers’ list? Send us an email at: press@vopay.com

Data Networks

•  Envestnet Yodlee

• Flinks

• Fiserv

• Plaid

• MX

• Inverite

• Direct ID

• M Science

KYC/AML

• Equifax

• Experian

• Transunion

• Trulioo

Lending

• Quicken Loans

• Kabbage

Spending / Savings

• Mogo

• EQ Bank

• Petal

Payment-as-a-Service

• Interac

• VoPay

• Trustly

Investing

• Betterment

• Morningstar

• Wealthica 

• Quest Trade

Accounting

• Xero

• Intuit

Policy

• FDATA North America

• Fintech Growth Syndicate

• Canadian Lenders Association

Significant pain points persist with business payments but with continued growth in open banking adoption more business then ever are realizing the benefits of embracing the technology. Open banking is projected to have continued growth well into the future. Let’s have a look at some of the numbers below in our latest infographic:

Help Shape The Future of Open Banking

VoPay is a proud FDATA North America member. Learn about membership benefits here.

Welcome to our new ONE:ONE blog series where we sit down with thought leaders and pioneers in the fintech, payments and open banking space.

Our first chat is with Lloyd Evetts, Director of Business Development at Inverite, a leading open banking provider with coverage for over 275 Canadian Financial Institutions. 

Q&A

1. What’s one thing everyone should know about Inverite?

My two partners and myself have each been involved in Financial Technology for over 20 years in payments, lending and now data aggregation.  One of the first questions I’m usually asked is how we have support for so many more FI’s than anyone else – experience goes a long way!

2. What’s your role at Inverite?

My role here is split between product management, business development and operations.  My background in IT has proven to be a great strength too, I work very closely with both our and our client’s technology teams and understand what goes into an integration and how the data is used.

3. What gets you most excited about the VoPay Inverite partnership?

I think the payments space is poised to see the same kind of radical change that we saw in credit decisioning with the introduction of open banking, and I think VoPay is at the forefront.  I’m excited to see how our data and coverage can help them innovate.

4. What does the future of open banking look like?

I’m optimistic that we’ll see a collaborative landscape where the incumbent FI’s and Fintech’s work together and we really unlock the potential of open banking and consumer-directed finance.  We all know the regulatory track has been delayed with COVID-19 but there is important progress being made by industry lead organizations.

5. Who is your fintech/ tech hero and why?

Eva Wong.  Borrowell was one of the first major Canadian players to really see the potential of a data driven approach and invest in data science.   I’m continuously surprised and impressed by how they leverage alternative data in their new products and finally also their involvement with groups like the Canadian Lenders Association who promote ethical lending practices.   

Learn more here about the VoPay + Inverite partnership.

We’ve teamed up with top financial data providers to deliver our industry leading open banking payments solution that allows you to accept instant bank account verification payments, improve payment speed and reduce NSFs.

Let’s have a closer look at each of our data integration partners who are a part of the VoPay API that’s designed to optimize EFT payment processing:

Plaid

Plaid is focused on democratizing financial services through technology. They provide developers with the tools they need to create easy and accessible experiences for their users. Today, tens of millions of people in North America (and counting) have successfully connected their accounts to apps they love using Plaid.

Learn more about the VoPay + Plaid integration here.

Flinks

Flinks empowers businesses to connect their users with financial services they want. Trusted by hundreds of world-class companies, Flinks enables businesses to connect users’ bank accounts, enrich their data, and utilize it to deliver better products. An award-winning company, Flinks has become the leader in financial data connectivity in just three years.

Learn more about the VoPay + Flinks integration here.

Inverite

With support for over 285 Canadian financial institutions Inverite is the data provider of choice for many of Canada’s leading companies offering innovative, secure and cost-effective banking verification solutions to the financial services industry for income verification, credit decisioning, fraud reduction, and KYC/AML purposes.

Learn more about the Vopay + Inverite integration here.

More to come

We’ll be adding additional partners in the future so keep an eye out on our newsroom for announcements!

EFT payments are not created equally thanks to our mission of digitizing online bank account payments with speed, transparency and traceability. In our latest infographic, we compare our ‘smart’ EFT payments solution to our standard EFT payments service and to the traditional bank offering. If you’re interested in learning more just head over to our product page.

We’ve teamed up with Plaid to help make payment processing faster, more efficient and more secure. Before we dive into how it all works let’s get to know each of them a bit better.

Meet VoPay

VoPay is a leader in payment innovation, digitizing direct bank payments with speed and transparency. The VoPay Platform enhances how digital platforms initiate and accept financial transactions using a single, open API.

Meet Plaid

Plaid is a technology platform and data network that enables applications to connect with users’ financial accounts. They focus on lowering the barriers to entry in financial services by making it easier and safer to use financial data. Today, they support developers across North America and Europe.

How VoPay + Plaid Payments Work

VoPay layers Plaid’s Auth, Identity, Balance, and Transactions solutions over top of its core payment engine to deliver the most powerful EFT payments solution in the market.  The result is a seamless payment experience with reduced NSFs, verified bank accounts and improved payment speed.

Current Payment Challenges

There are three main hurdles when it comes to existing EFT payments:

1. Lack of visibility: Paper checks or electronic payment systems for bank account payments do not allow visibility into the bank account at the time of the payment.

2. No traceability: Businesses accepting check or electronic payments can not track the payments, the status of the transaction or when the funds will be available.

3. High risk: The current paper check and electronic payment service do not offer balance verification at the time of transaction.

Common Payment Use Cases

Some of the most common use cases include lending and market places where the solution can dramatically reduce NSFs, optimize cash flow, streamline back-office operations and improve payment security. Another would be legal and real estate where you can increase revenue with significantly reduced fees and decreased chargeback risk.

In summary, together VoPay + Plaid payments improve efficiency by verifying user identity and bank information prior to processing the transaction, minimize NSF fees by having visibility into available funds and reduce the access to funds time to just 24 hours.

Are you a developer? View more details here.

Over the past two years, there has been a lot of discussion around the concept of ‘Open Banking’ and the potential benefits it holds for both Canadian consumers and businesses. Since its inception, open banking has taken the North American payments market by storm by offering consumers an alternative, and flexible payment solution. Yet, as we enter a new decade, it’s anticipated that we will see government and industry leadership surrounding open banking in Canada boom, especially as it relates to its impact on small and medium sized businesses. Currently, 71% of financial institutions are willing to invest up to $20 million in open banking solutions.

On January 31, 2020 Finance Canada released its report outlining the findings and recommendations of Finance Canada’s Advisory Committee on Open Banking. One of the key takeaways of the committee is that Open Banking “delivers tools that would support Canadians in improving their financial outcomes, by enabling them to use their information to secure better rates or products; manage their small businesses more easily; and access new tools that help improve their financial health.” 

So what is Open Banking, or Consumer Directed Finance?

At its core, Consumer-Directed finance recognizes that consumers and businesses should be in control of their financial information and should be able to benefit from the use of it. An Open Banking system does not mean that all data is open to everyone but rather that consumers can authorize accredited third-party applications to access their data to provide them with services that will benefit their business and improve their financial operations and business efficiency. Think of it as a technology layer that sits on top of the current legacy financial institutions enabling new technologies to create new and beneficial services based on your financial data that are targeted to your own specific needs. 

Why do we need Open Banking?  

Canada’s legacy financial institutions are over 100 years old consisting of many separate siloed technology systems that have been built over the past 50 years. Because of this business structure, information cannot flow between systems in a transparent manner that can give the business financial professional any type of holistic visibility of their financial position. Something as straightforward as viewing and reconciling transactions across  consolidated bank balance is not possible, or managing cash collections and payments across multiple vendors and customers. Currently, more than 80% of businesses are demanding more payments options. 

Open Banking enables a third-party financial technology company to access bank account data across multiple accounts in multiple institutions, consolidate it into a single balance and can automatically reconcile financial transactions as they occur. 

Payments, the first commercial use case for Open Banking

Payments represent one of the best examples of the potential of Open Banking.  According to Payments Canada over 90% of the total value of payments in 2018 ($8.8 trillion) were bank EFT and cheques. There were $3.9 trillion in cheques processed in that year, over seven times the total value of credit card payments processed ($0.5 trillion). These bank payment methods are rife with inefficiencies and challenges of our legacy systems. Lack of visibility into the successful settlement of payments; Non-sufficient funds; uncertain payment periods; and an inability to easily integrate any e-commerce system into the current payment system makes cash and treasury management a painful chore for almost all finance departments and a significant barrier to entry for Canada’s small and medium-size enterprises. 

The ability to collect and send payments while successfully reconciling and managing a business cash positions is the lifeblood of any business. More than 80% of Canadian small businesses are looking for more payment options. In today’s digital world increasing the number of payment options directly increases a businesses total addressable market and provides their customers with a better experience.   For enterprises whose average payment size is greater than the average credit card payment (C$93) or online transfer ($304) digitizing checks and integrating EFT services is still a major barrier to entry to growing and managing their business.

Open Banking enables payment technology businesses to offer a technology layer that sits between the legacy banking system and any businesses e-commerce or ERP system. With Open Banking data the payment technology provider is able to immediately verify banking payment transactions and provide payment transaction transparency that allows for easy reconciliation and the automation of cash management activities. 

Open Banking technology is much more than just access to financial data for novel client applications.  It is the first necessary step in the creation of a new financial technology stack that sits on top of the regulated financial institutions that in the future will enable the automation and interaction of all businesses cash and treasury functions with businesses and financial institutions around the world.  It will provide businesses with access to the capital that they need on a ‘just-in-time’ basis by quickly analyzing capital requirements, creditworthiness and immediately connect to the appropriate capital providers.  This new Financial Technology Stack will drive in a new world of interactive Finance 2.0 the same way that adding Internet and data to the telecommunications providers did for e-commerce at the beginning of the Millenium.

Many people around the world have lost their jobs, had hours cut, and are facing financial crises during this challenging time. Of the many things that have been drastically affected, consumer habits are among them. Some of these consumer changes, however, may turn out to be positive and stay for the long term.

Cash, for example, is no longer king at brick and mortar shops. It’s been replaced with contactless payments, such as debit and credit cards, for health and security reasons. The same goes for paper versus digital cheques, as another digitization example. 

With so much financial and economic uncertainty and upheaval taking place, people are becoming more aware of their financial situations and wellness. They are taking control of their finances and managing what they can. Hopefully, this greater awareness of one’s financial wellness may stick around once the health and safety risks pass and normalcy resumes.

Making the best of a bad situation: Fintech apps to manage finances

Nearly one million people applied for employment insurance in Canada, for example, in the wake of the coronavirus outbreak. While some bill payments can be deferred, expenses tend to add up, especially when little to no income is coming in. 

A recent National Post article referenced Erin Lowry’s financial advice book called “Broke Millennial.” In it, they discuss an emergency plan for paying bills, which includes assessing the damage, stalling fixed debt, prioritizing your needs, and riding your credit cards. 

Depending on the individual’s financial situation, this last point should be a last resort. Credit card debt can be crippling in interest payments over the long term. Wherever possible, spend what you have on essentials. For example, when making bill payments or shopping for essentials online, use your chequing accounts rather than your credit cards to avoid extra debt. We wrote posts about how ACH and EFT transfers work for more information on digital payments that don’t increase credit card debt.  

When it comes to managing money, such as assessing the damage and prioritizing needs in an emergency, consumers may need help. That’s where financial applications come in. Thankfully, there are hundreds of financial applications available right at their fingertips. We wrote about 15 helpful fintech apps that might even come in handy during this time. Consumers can stay on top of their finances, bills, savings, income, debt, goals, investments and so on right from their phones in various apps. 

Fully functioning fintech applications and open banking

However, earlier this year, the Financial Data and Technology Association (FDATA) of North America released data that 1.8 billion consumer accounts in the U.S. could lose functionality to financial apps they depend on. The FDATA North America determined that impacted consumer and small business use cases would include:

• Over 530M loan accounts that help consumers with retirement planning, debt reduction, and financial wellness
• Over 310M accounts to help Americans manage account balances, provide overdraft protection, and make on-time payments
• More than 330M investment accounts
• More than 210M accounts to help Americans save and move money
• Almost 200M transaction accounts
• Almost 140M accounts to protect Americans from fraud and provide identity authentication
• Over 100M credit accounts

All of these various financial application accounts used by Americans every day could be affected if screen scraping was prohibited and only the largest financial institutions’ APIs were available because required data fields would be lost. The other, more convenient, consumer-friendly, and secure alternative is open banking. 

Open banking gives consumers power over their finances. Consumers have the choice to use (and approve) fintech applications in order to support their financial goals and wellbeing now and in the future. 

The world’s greatest inventions don’t exist in a vacuum. They cannot be attributed to one person or company. They compete with each other and build on past learnings. Innovation thrives with competition.

Even now, the Edison Awards’ discuss the importance of healthy competition in order to innovate. History hasn’t removed this necessity to compete, innovate faster, discover something first, or use and build on the learnings of others. The article references a PwC survey that said that 80% of CEOs believed that innovation drives efficiencies and leads to a competitive advantage. For every Steve Jobs, there must be a Bill Gates.   

The same goes for the financial technology (fintech) industry. Healthy competition fuels innovation. 

Healthy competition and innovation in the financial industry

But, just like how Edison published his findings and many built upon his inventions, fintech companies today require this same openness in order to compete. They need data and access to it. They need open collaborations. Permission to innovate. Permission to create a better world (or product, service, or experience) for the people.  

In order for the fintech industry to innovate, compete, and build on the learnings of others—just like Edison, Westinghouse, and Tesla did in the late 1800s—open banking must exist. 

Open banking and competing to innovate

We wrote on the meaning and importance of open banking in the past, but to save you time, here’s what it means. Open banking is the sharing of data. It is the collaborative innovation between banks and innovators such as agile fintech companies. Open banking gives consumers the power to give innovators access to their data. Without this permission and data, companies are innovating in the dark with missing information and a lack of access. 

Without open banking, competitive innovation is challenging at best and nearly impossible at worst. But beyond just the lack of innovation that this could trigger, without open banking or similar means to get data and information, the functionality of millions of applications could start to fail. 

Innovation and functionality in fintech without open banking 

In fact, in a recent post called Financial Wellness Apps Bank On Credential-Based​ Authentication, we discussed findings that the Financial Data and Technology Association (FDATA) of North America published in January 2020. The data showed that 1.8 billion fintech consumer accounts in the U.S. would lose functionality to financial apps they depend on without open banking and similar competitive options. 

Broken down into parts, the impacted consumer and small business use cases in the U.S. alone would include 530 million loan accounts or fintech apps for retirement planning, financial wellness, and debt reduction. Over 310 million accounts that help people manage and pay their account balances on time or provide overdraft protection could lose functionality. More than 330 million investment accounts and 210 million accounts that help Americans move and save money could no longer work. This is just the tip of the iceberg.

Demand and competition fuels the unstoppable innovation train

Back when Edison invented the lightbulb, people used candles and fire to light and warm their homes. When the richest among them were given the opportunity to use lightbulbs powered by electricity, lightbulbs that they paid for and chose to use. They were a welcome novelty. Soon they became more efficient, effective, cheaper, and accessible. Consumers still had the choice to bring electric light and power into their homes, but the improvement to their way of life was dramatic.

This same freedom of choice for consumers must continue to exist today—as does the need for healthy competition among innovators (and inventors). People use financial applications to improve their lives and financial wellness. They rely on them and need them to function properly. Without open banking and the collaborative and competitive innovation and sharing of information, what does the future of fintech hold for us? 

Open banking gives consumers a choice over what innovations, products, and services they support. Open banking provides data and learnings and necessary for innovation and healthy competition. Without open banking—a regulation that only the U.K. is currently blessed with—only those with the information can innovate and compete. Currently, this is financial institutions. Unless these major banks of the world collaborate with innovators, which they often do, there won’t be any healthy competition, inventions, or progress. 

Without healthy competition in the financial industry, we’d all be signing cheques in the dark.