Sunday , October 1, 2023

With an $825-Million Deal for Finicity, Mastercard Picks up Open-Banking Tech for POS Credit

Mastercard Inc.’s $825-million deal for Finicity Corp., announced Tuesday, may be aimed at ensuring a strong position in burgeoning markets like point-of-sale credit, but it could also prove handy as consumers struggle with the financial fallout of the coronavirus pandemic, observers say.

The acquisition, which Mastercard says should close by year’s end, will also help bring to the U.S. market an open-banking initiative the card network has been pursuing in Europe. Some observers see in it an answer, albeit at a much more modest price, to Visa Inc.’s January announcement that it would shell out $5.3 billion to acquire Plaid Inc., another provider of tools that allow fintechs to access users’ bank accounts.

Founded in 1999, Salt Lake City-based Finicity has built its business on data access and technology for user authentication and credit decisioning, and has acquired a number of well-known clients in lending, including Quicken Loans, Rocket Mortgage, and Experian Boost. Clients also include Brex Inc., a 3-year-old startup that offers business credit cards and cash-management services.

While the deal may be seen as a less expensive version of Visa’s Plaid acquisition, bringing Finicity into Mastercard’s camp will confer unique advantages because of the company’s emphasis on lending, say some observers. “What’s interesting about Finicity is that their technology has a core focus on authentication and the credit-decisioning value chain,” says Patricia Hewitt, principal at PG Research & Advisory Services LLC, Savannah, Ga. “Open banking is really all about access to actionable data locked up in banks.”

Hewitt: “Open banking is really all about access to actionable data locked up in banks.”

Networks like Mastercard have historically supported banks that issue revolving credit cards, but the addition of Finicity will radically expand that focus, Hewitt says in an email message, bringing technology that can support “loans that are not traditional revolving credit cards or long-term installment loans” and “also pinpoint lending at the [point of sale] tied to consumer/business-driven repayment parameters.” Mastercard first entered the POS loan market with its acquisition last year of Vyze Inc., a provider of POS technology for installment lending.

The drive to the point of sale, coupled with technology that can link to vital bank data, may prove timely as consumers emerge from Covid-19-induced quarantines and stores look for quantitative support for credit decisions on buyers who may have overspent or lost jobs during the crisis. “I think this type of capability will become extremely important as citizens emerge credit-damaged and credit-averse post-pandemic,” says Hewitt.

Finicity may not be Mastercard’s last acquisition in open banking, a field it and rival Visa have clearly identified as critical as payments markets expand into non-card transfers and related financial services. “Open banking is a growing global trend and a strategically important space for us,” said Michael Miebach, president of Mastercard, in a statement. “With the addition of Finicity, we expect to not only advance our open-banking strategy, but enhance how we support and accelerate today’s digital economy across several markets.” Mastercard announced in February that Miebach in January will succeed long-time CEO Ajay Banga.

Mastercard’s deal for Finicity includes an additional $160-million payout if the firm achieves performance targets, the network said.

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