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The big payments fintech Stripe Inc. extended its reach into the world of open banking late on Wednesday with the launch of Stripe Financial Connections, an application that allows businesses to establish direct connections with their customers’ bank accounts. The new application will enable businesses to verify accounts for payments and payouts, check balances to reduce payment failures, and reduce fraud by confirming bank-account ownership. Stripe Financial Connections supports platforms, businesses, and a full spectrum of users, from NFT creators to churches.
The purported payoff for businesses is that Stripe Financial Connections allows them to use linked bank-account information to underwrite risk and offer loans to their business users. For other users, the service opens the door to a suite of financial services, such as tools for tracking budgets, paying bills, and identifying spending patterns, a Stripe spokesperson says by email.
“Businesses have been asking us for an easy, secure way to connect to and verify their customers’ bank accounts,” Clara Liang, business lead at Stripe says in a prepared statement. “Stripe Financial Connections delivers just that.”
Businesses using the new service must specify the type of information they will request from customers, and why they need it. To make their account data accessible, consumers enter their online banking credentials and select the account they’d like to link through Stripe Financial Connections.
After a consumer enters her credentials, the financial institution provides Stripe with access to the account through a token, the Stripe spokesperson says. The process is known as an OAuth (Open Authentication) connection, which is a way for customers to directly log into their financial institution to share information with a business and Stripe, without sharing login credentials with Stripe or a service provider. Before linking an account, consumers see who gets access to their login credentials via an overlay on the credential pane that links to a detailed FAQ.
Historically, businesses seeking direct connections to bank accounts have had to either build custom integrations with thousands of different financial institutions or attempt a workaround, such as asking customers to type in routing and account numbers, then confirm microdeposits a few days later, the Stripe spokesperson says.
The latter approach can be a tedious process for consumers that leads to abandonment rates in the area of 40%, according to Stripe. With the new Stripe technology, businesses can connect to customers’ financial accounts to power payments (for example, with automated clearing house payments on Stripe), payouts (for example, with Stripe Connect) and financial services (for example, loans with Stripe Capital), the Stripe spokesperson adds.
Stripe says it supports open banking because it sees the technology as a way to increase innovation, enhance consumer choice, and improve the services it can provide to its users and their customers.
