Credit Services Stocks Gain as Open Banking Deals Heat Up

Mastercard expands its move into open banking

Credit services stocks shrugged off broad selling across Wall Street Tuesday after Mastercard Incorporated (MA) announced that it will acquire Aiia—a leading European open banking technology provider that bridges the connection to banks via a single application programming interface (API), allowing customers to directly integrate with financial institutions.

Key Takeaways

  • Credit services stocks rose after Mastercard said it will acquire open banking fintech Aiia.
  • Mastercard (MA) shares have remained in a steady downtrend since early August but bounced from key support at $343.50.
  • PayPal (PYPL) shares broke to the upside from a flag—a pattern that typically signals a continuation of the current trend.

Although the Mastercard didn't disclose the specific details of the deal, it expects the merger to be completed by year end. "The value of open banking comes through empowering consumers and businesses to use their own data to obtain financial services solutions simply, securely, and quickly. The addition of Aiia anchors our European open banking efforts and allows us to continue to meet our customers where they are," said Mastercard Chief Product Officer Craig Vosburg.

In a nutshell, open banking gives customers more control of how they want to use their financial data and enables them to build tailored applications and services to better suit their needs. The technology fits well with Mastercard, given it acts as a financial intermediary with a large secure data network connecting banks, merchants, and customers.

The company made its first inroads into open banking in 2019 when it teamed up with fintech payments startup to offer the technology to customers in the United Kingdom and Poland. Since then, the credit services behemoth has continued to bolster its open banking innovation by acquiring North American data and insights firm Finicity and leading European pay tech company Nets. Through Tuesday's close, Mastercard stock has a market value of $340.15 billion, offers a modest 0.52% dividend yield, and is trading 3.43% lower on the year.

From a technical standpoint, the share price has remained in a steady downtrend since early August but bounced Tuesday from key support at $343.50. Those who enter at these levels should set a take-profit order near $395—an area on the chart that finds overhead resistance from the top trendline of a prior trading range. Protect capital with a stop placed just underneath last week's low at $338.93.

Chart depicting the share price of Mastercard Incorporated

Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices together or show some data's best fit. The resulting line is then used to give the trader a good idea of the direction in which an investment's value might move.

Let's also take a closer look at digital payments company PayPal Holdings, Inc. (PYPL) and its open banking developments.

PayPal Holdings, Inc. (PYPL)

The $344.59 billion digital and mobile payments company boosted its exposure to open banking in 2019 through an $11.2 million strategic investment in Swedish fintech banking platform Tink. The partnership leverages Tink's proprietary account aggregation technology to improve product experiences for PayPal customers.

"Open banking is transforming financial services, allowing customers to more easily move and manage their money. Tink has developed the infrastructure and data services for this new financial world, and we're excited to work together to continue to democratize financial services," PayPal's VP of global markets and partnerships Jennifer Marriner said at the time of the deal. Interestingly, PayPay rival Visa Inc. (V), purchased Tink earlier this year for $2.13 billion, demonstrating how eager credit service providers are to incorporate open banking technology across their platforms.

More recently, the digital payments giant outlined plans to integrate open banking and third-party transfers with its burgeoning cryptocurrency service offerings to provide additional functionality. As of Sept. 8, 2021, PayPal stock has added 25.22% year to date, outpacing the industry average over the same period by around 12%.

PayPal shares broke to the upside from a flag Tuesday—a pattern that typically signals a continuation of the current trend. Furthermore, the price trades above the 50-day simple moving average (SMA), confirming the bulls sit firmly in the driver's seat. Active traders who buy here should aim to book profits on a move up to major multi-month resistance at $310 while limiting downside with a stop-loss order positioned under the flag pattern's low at $284.40.

Chart depicting the share price of PayPal Holdings, Inc. (PYPL)

A flag is a price pattern that moves counter to the prevailing trend. It is named a flag because of the way it resembles a flag on a flagpole.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.

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