It happens to many of us at some point — a monthly bill comes in, but the payment doesn’t go through because the money isn’t available on time. For a small monthly payment, such as a department store bill, it’s an annoyance that can be solved with a phone call (with a long wait to reach customer service). But for larger monthly payments that have a greater impact on a person’s creditworthiness, such as rent, mortgage, or student loans, a missing or late payment can be painful not only for the delinquent payer, but also for the company expecting the payment, as both parties strive to find a way to complete the transaction – often with a significant late fee attached.
But now, as part of its initiative to leverage open banking solutions — utilizing advanced data analytics and machine learning tools — Mastercard today announced the launch of two Smart Payment Decisioning tools under its Finicity open banking division, that will facilitate payment transactions more seamlessly and securely: Payment Success Indicator and Payment Routing Optimizer. “It’s all about consumer convenience, giving consumers choice and really listening to consumers’ desires to have access to different security types and ease of use – that’s at the heart of these news tools,” said Silvana Hernandez, senior vice president of Digital Payments for Mastercard in an interview with ZDNet.
The type of payment rail at the heart of Mastercard’s new Smart Payment Decisioning tools is the Automated Clearing House, or ACH Network, which is used for automatic bill payments, brokerage account deposits, and direct wage deposits. Hernandez told ZDNet that as Mastercard developed its tools through its research, ACH payments, while gaining popularity in the digital banking age, still have many pain points that affect consumers and merchants alike.
The two most common pain points for ACH payments are the complexity of making ACH payments (finding and entering account and routing numbers correctly) and customers who have insufficient funds at the time of withdrawal, usually because they have enough cash in their possession. account when the transaction is due (incorrect timing of the cash flow and balance in their account). “It has to do with the fundamental fact that ACH has a latency process; you trigger a trade today, but it won’t settle in two to five days, and that creates a timing mismatch that is painful for merchants and consumers alike,” says Hernandez, adding that merchants are being hit with heavy operational burdens, including directing teams to track down late payments.
How it works
Payment Success Indicator and Payment Routing Optimizer work hand in hand. The Payment Success Indicator uses open banking data — consumer consent data that the consumer controls but Mastercard controls — and uses AI and machine learning to process the data and give the merchant a better score and prediction in determining whether a transaction will be successful. will be successful or unsuccessful, based on the timing, amount and type of transaction.
On the other hand, Smart Routing Optimizer takes the data, predictions and analytics and determines the best way to execute a trade. Rather than sticking to one payment rail, such as ACH, it will find the best solution to trigger a transaction and recommend another payment rail that is more suitable for the consumer. For example, if the Payment Success Indicator shows that the balance for a transaction is available today, but may not be available in the next few days, Payment Routing Optimizer recommends using Same Day ACH. The goal is to find the right rail for the consumer and merchant to complete the transaction in the best possible way.
“We are building these solutions for the benefit of the banking ecosystem,” Hernandez says. “Banks don’t want a consumer’s payment declined just because of bad timing. So they’re trying to meet everyone’s needs in the ecosystem by leveraging the data that the consumer gives us permission to use, running the analysis on that data and providing insights and recommendations for the benefit of merchants, financial institutions and consumers,” she says.
Payment Success Indicator and Payment Routing Optimizer are currently limited to rental housing space, with general availability planned for later this year, Mastercard said. The first customer of these tools is now Bilt Rewards Alliance, a collection of more than two million rental properties in the US that allows renters to earn points by paying rent. “Our mission is to help tenants get the most value from one of their biggest expenses, and refunds create significant costs and friction for both residents and landlords,” said Ankur Jain, CEO and founder of Bilt Rewards. In Mastercard’s press release, Jain notes that he expects the payment success indicator to reduce the potential for refunded payments.
While these two new tools are now limited to just one customer, Hernandez says Mastercard will bring in more partners later this year. “Right now, our solutions aim to address the pain points of vertical markets that have meaningful reliance on ACH today. Education, healthcare, insurance — those would be the targets,” she said.
Both Payment Success Indicator and Payment Routing Optimizer are powered by the concept of open banking, which allows third-party financial services providers open access to consumer banking, transaction and other financial data from banks and non-bank financial institutions using application programming interfaces or APIs. So through open banking, consumers, financial institutions and third-party service providers will use a network of accounts and data between institutions. By leveraging networks rather than centralization, open banking can help financial services customers share their financial data more securely with other financial institutions.
In Mastercard’s recent survey, “The Rise of Open Banking,” nearly three-quarters (74%) of U.S. consumers said they have or would link their bank accounts to automate financial tasks. In addition, 90% of GenZ and Millennial consumers already link their bank accounts to apps, according to Mastercard.