Wednesday, July 8, 2020

Mastercard continues diversification with billion-dollar fintech investment

The multinational financial services corporation announced Tuesday it had acquired Finicity, a Salt Lake City-based fintech.  Visa made a similar move in January with the acquisition of Plaid, a similar fintech, for $5.3 billion.  Finicity’s proprietary high-tech financial solutions will help bolster Mastercard’s account authentication and lending decision capabilities.  This will also allow the world’s second-largest payments processor to offer more streamlined and secure services to customers as it continues its foray into open banking systems.

Open banking systems

A relatively new feature of the digital economy, open banking systems enable third-party developers such as Finicity to build customizable Application Programming Interfaces or APIs across several financial markets.  Such ingenious APIs have the potential to help foster greater financial transparency for tech-savvy businesses and individuals.  Financial exclusion concerns do exist, however, for low-income consumers who may not have the know-how to fully benefit from it.

Well-dressed man reading business section of newspaper.  Image | Adeolu Eletu on Unsplash
Well-dressed man reading business section of newspaper. Image | Adeolu Eletu on Unsplash

Mastercard’s strategy

With mobile technologies and the internet of things rapidly gaining steam, Mastercard initiated the open banking platform strategy last year in Europe where it currently serves 1,800 financial institutions.  The acquisition of Finicity will give momentum to Mastercard’s localized view to approaching new markets and support the concept’s roll out to its North American businesses next.  In time, this disruptive business model could revolutionize how and where fintechs and banks can access customers’ personal financial information to initiate payments or offer money management services on their behalf.

Finicity also shares our commitment to consumer-centric data practices, ensuring consumers have a say in how and where their information should be used.

Michael Miebach, Mastercard President

Background on Finicity

Launched in 2000, Finicity partners with banks and other fintechs to deliver prompt business information and insights.  These financial data access APIs support firms like Experian with credit decision-making and Fannie Mae with loan analysis. Finicity founders pride themselves on empowering consumers and institutions through better data access and protection.

Enabling people to access and control their data, while ensuring best practices to protect that data, will continue to drive tremendous innovation that increases financial literacy, inclusion and health.

Steve Smith, Chief Executive Officer and Co-Founder of Finicity

Through this partnership with Finicity, Mastercard is poised to further expand its operations globally. The estimated $1 billion deal guarantees both management retention and a low-risk $160 million performance-based earn-out to its shareholders.  Finicity’s 500 employees will continue to run operations out of Utah and Mumbai as the firm integrates Mastercard.

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