Open Banking
August 25, 2022

How automated payments can transform personal finance

Imagine a world where your bills are paid off automatically and seamlessly, with just a single notification telling you it’s complete.

No more linking multiple accounts. No more setting reminders to make a payment. No more going through multi-factor authentication for every single account every time you have a bill.

We’re already seeing it happen thanks to auto-pay, designed to automatically pay the current balance of your cable, utility, or telecom bill. But while auto-pay has made paying off your bills a bit easier, there’s no centralized place to handle all of your debts, all at once.

The current bill pay system is inefficient and archaic

Only around 20% of Americans use auto-pay. Anytime you get a new bill, you’ll have to manually set up auto-pay for your payments. If you move or change providers, you’ll have to repeat the process all over again. Not having one centralized place to track debt payments can lead to missed payments, which in turn leads to a cycle of growing debt and impacted credit score. Companies offering these services face higher operating costs and overall reduced customer satisfaction.

What’s more, the lack of open banking standards makes it hard for companies to offer a holistic view of customer debts. Open banking standards have already made an impact in places like the United Kingdom, but the United States lags far behind the curve. Fintechs have previously tried to address this issue via screen scraping, which forces customers to hand over their log-in information to third-party providers. Unfortunately, this method makes sensitive data vulnerable to scammers, costing businesses money and customer loyalty. 

The value of a standardized open API – for both the consumer and the company – is obvious. Consumers save time and have a better opportunity to improve their financial health. Companies improve their payment cycles, lower their operating costs, and have a more harmonious relationship with customers. Here’s how. 

Consumer Issues & Solutions

Save time managing bills: Thanks to a growing subscription economy, the number of bills a consumer has to track is exploding. The average American household pays between 7-13 bills per month, and spends $22,666 annually on bills, around one-fifth of their total spend. The more bills you have, the harder it can be to keep track of them all — around 30% of Americans struggle to pay their bills on time. Because of this, many consumers struggle with missed payments and unmanageable debt, and don’t have a streamlined way to deal with it.

Source: Financial Health Network

Reduce late payments: If you miss a payment on your credit card or other bill, you may face late fees and interest charges that can quickly add up. US consumers paid $305 billion in late fees and interest charges last year — $106 billion of which is from credit cards. Unpaid credit card bills can rack up high interest and affect your credit score, pulling you into an unsustainable cycle of growing debt that can be hard to get out of.

Source: Financial Health Network

Decrease household spending: Struggling households may be spending extra time and money remediating their debt, including finding extra funds to put towards fees and interest, or spending extra time finding and tracking their payments and bills. More than one in four consumers said they had a bill that they were one financial setback away from being unable to pay.

Current solutions don’t address the entire issue 

With innovations like auto-pay, consumers may risk overdraft – which comes with added fees. Others forget about their debt payments altogether and must either pay late fees or go into default because their debts are spread out across different accounts. 

Without the ability to centralize or aggregate debt and payments across multiple platforms, consumers are forced to manage their payments through individual platforms, often struggling to track their bills and loans through non-native banking apps. Not only is this a frustrating user experience, it can have a direct impact on consumer financial health. 

How open banking APIs can benefit consumers 

Open banking has the potential to offer personalized products and services for consumers, including a centralized place for them to view and track their debt, thanks to access to more data sources that create a tailored experience for their specific financial need.  

A recent survey found that 54% of Americans said they are willing to provide financial information if it means a faster, more seamless experience. Benefits include: 

  • Increase on-time debt payments: The more seamless the user experience, the more likely the user is to make on-time payments, especially if they’re able to view all of their debts in one place with greater transparency. Users would be one click away from viewing their entire current financial situation.
  • Faster access to credit: Users manage all of their bills, including any new lines of credit, in one place. Automated payments enable users to manage all of their bills, including any new lines of credit, in one place. It also allows for autonomous refinancing of consumer debt. For example, high-interest debt can be rolled over into lower-APR credit lines, saving the consumer thousands of dollars in interest charges. 
  • Enhanced user experience: Consumers would now have the ability to view and interact with all of their debts in one place, with no need to log into multiple accounts. This reduces the amount of time it takes to pull their debts. 
  • Increased customer loyalty: Users will have full control over how their financial data is used and who can access it, which can bring confidence and loyalty to their relationship with a company. Consumers get a more seamless, unified, consistent, error-free experience, which can increase overall customer loyalty and satisfaction.

Company Issues & Solutions 

Providing liability management within an app has been a traditionally costly and challenging endeavor, typically involving integrating screen scraping APIs and manual work, such as mailing paper checks and return reconciling. What’s more, US regulations make it difficult for a company to provide a comprehensive debt management system within a single app or platform.  

Increased processing costs: Companies are forced to utilize a patchwork solution, such as asking consumers to log into each one of their individual financial institutions or consistently fixing connectivity issues resulting from web updates in order to scrape. Product and finance teams must spend their time manually completing tasks, such as processing transactions, sending payments, collecting paper checks, and pulling financial data from different accounts. This is time-consuming, costly, and prone to human error.

Lower customer satisfaction: With screen scraping, customers have no ability to view, manage, or withdraw consent to their data being used. They also typically won’t get visibility into which third parties can gain access to their data. This means users may have to re-authenticate their accounts all over again, leading to an overall poor user experience and a loss of trust between the company and customer. 

Increased opportunity for security: Companies may not always be aware of who’s setting their data and financial information is vulnerable to loss or scammers. Fraudsters can use scraped data to commit application fraud, exposing the company to security risks — and angry customers. Companies dealing with upset customers have to put time and money into remediating customer penalties via call centers, which increases their operating costs. 

How open banking APIs can benefit companies 

Open banking APIs enables financial institutions to transfer data directly and securely, allowing you to gain real-time financial information, all in one place. A recent survey found that 40% of open banking users said it improved their financial decision-making. There are several benefits companies can get from an open banking API.

  • Seamless integration: APIs can easily be integrated with existing payment software, leading to overall faster processing. 
  • Reduced costs: Instead of paying an employee or multiple employees to handle a payment system, businesses can use a cost-effective, automated solution. Open banking takes the processing payment costs out of the equation, and saves the company time and on administration expenses. A reduced risk of human error also means lower overall costs. 
  • Security & protection: An automated payment system is typically secured between the customer and the business system, reducing overall fraud risk.
  • Increase on-time debt payments: Any data obtained from APIs are validated and up-to-date, allowing companies to analyze their customers in real time and provide immediate updates. By eliminating the need for customers to manually input their data, open banking APIs provide a seamless, more consistent customer experience. 
  • Increased user experience: Using an open banking API can help companies innovate their products and improve their offerings for consumers. A better experience translates to happier customers, driving overall user adoption and conversion rates.

Current bill pay & payment automation landscape

The fintech industry has come up with some initial solutions, including providing data aggregation via third parties like Mint or Rocket Money. But companies like Mint are simply a UI that sits on top of bank connect technologies like Plaid. While Mint and Truebill are working to provide a comprehensive debt view, they are currently unable to offer a payment solution without a banking partnership.

When it comes to payments, Mastercard is enabling automated payments with its Bill Pay Exchange product, which promotes bill payment within native banking apps. Newer incumbents like Papaya and BillGo are working to leverage payment automation in order to centralize recurring bill payments. While this is a step in the right direction, it keeps overall control concentrated among legacy banks and avoids true innovation. 

So how can companies easily implement automated payments without a standard banking partnership? Enter Method API.

Method’s turnkey solution to consumer debt

Method builds APIs that allow fintechs to easily interact and push money to their user’s debts. 

Method Data allows companies to retrieve real-time data on all debt accounts using just a user’s phone number. This lets lenders and financial institutions access balances, payoff amounts, dates, details, and interest rates of debts, all in one place. Method Payments allows companies to initiate payments to any type of debt, helping them engage with their users using embeddable components, or via a DIY-experience with developer-first API. 

Using Method, companies are able to onboard thousands of users instantly, driving user adoption and user conversion. Method solves the gap left by the lack of open banking standards in the US, with minimal user input and helps us get one step closer to the utopian future of autonomous personal finance. 

While the benefits of open banking and automated payments are clear, it’s important to find the right partner to embark on the journey with. Let Method help — schedule some time here to learn more or reach out to