Trustly Inc. founder and chief executive officer Alexandre Gonthier said during a conversation with media representatives that, despite the uncertainty in regulation, pay by bank at retail, which uses open banking to carry out direct payment transactions between bank accounts, should become more widespread in the United States.
Currently, the future of open banking operations seems unsettled. The Consumer Financial Protection Bureau’s rules governing data sharing and use among banks and fintech companies may be rolled back, but this probability is not the maximum and does not belong to the category of what can be called guaranteed scenarios.
It is worth noting that currently, the future of pay by bank at retail in terms of future scaling prospects largely depends on whether consumers can be persuaded to abandon or reduce their usual practice of using credit and debit cards. In this case, merchants will have to do some work to educate and incentivize customers to make a choice in favor of pay by bank.
The difficulty lies in the numbers. The results of special industry research indicate that currently in the United States, more than 45% of consumers demonstrate an interest in making open bank payments. At the same time, only 11% of them did so. In this case, there is an example of a significant difference between intent and action.
Alexandre Gonthier stated that it is a difficult task to crack retail with pay by bank due to the presence of Visa and Mastercard.
Merchants’ interest in pay by bank may lie in the fact that in this case they are allowed to save about 1.5% of the cost of processing payment transactions. The corresponding statement was made by Alexandre Gonthier. According to him, open banking provides granular visibility into a consumer’s risk profile. Also in the relevant context, he noted that within the framework of the mentioned practice, there is an opportunity to compress the prices charged by merchants.
Alexandre Gonthier stated that pay by bank is a safer payment choice than card payments, despite the liability protection that payment networks have advanced over the years.
When consumers pay with their bank accounts, they are protected by Reg E, which stipulates that customers of financial institutions have the right to demand their money back simply by making a claim with that lender. At the same time, banks do not have workflows that allow charging individuals. According to Alexandre Gonthier, for the mentioned reason, financial institutions always agree to reimbursement. He also stated that dispute resolutions favor the consumers. Moreover, it was noted that more than 30% of consumers who are aware of fraud prevention capabilities in pay by bank say that their interest in this payment choice has grown.
Alexandre Gonthier stated that banks had already used the APIs and the enhanced connectivity brought by biometrics and other authentication tools before the codification of open banking rules to simplify the process of paying with a bank account, even in Europe, where the commerce landscape is fragmented.
Trustly, based in Sweden and enables pay by bank for European consumers, provides customers with the ability to click on the mentioned option in each country to perform simple authentication with their thumb or face. This was told by Alexandre Gonthier. According to him, the mentioned mechanisms are simpler than card payments. He separately noted that in this case, it is possible to sidestep manually entering card data, such as 16-digit primary account numbers, if the cards are not already on file.
Alexandre Gonthier said that the move to pay by bank at retail is still a bit of an uphill climb. This is the result of the fact that consumers have no fundamental reason to use the mentioned method of making payment transactions. For most of them, pay by bank occurs when they pull out their debit card. According to Alexandre Gonthier, something additional is needed, which debit cards do not provide consumers, where the past can be a prologue.
Individual debit cards, which have been issued and operated by merchants or organizations over the past few decades, have been and continue to be directly linked to a customer’s bank account through a third party, which has recently been challenger banks.
Alexandre Gonthier stated that the mentioned cards were typically attached to loyalty programs, which would be a key value-add feature for pay by bank. He suggests that loyalty programs will become an incentive for consumers to switch. The results of special industry research indicate that when consumers are presented with cash-back discounts or loyalty benefits under the mentioned programs, their interest in open bank payments shows an increase of more than 70%. This data probably contains a hint on how to form a system to effectively incentivize users to switch to new financial products.
Merchant’s loyalty programs can be fine-tuned, underpinned by the wealth of data tied to the connections between merchants, banks, and fintech companies. Alexandre Gonthier stated that Trustly informs retailers that the mentioned programs will drive more active consumer transactions over long-lived relationships, as firms realize the savings from payment processing and ramp up rewards points for everyday spending, such as at the gas pump.
Trustly is currently considering the possibility of providing installments for pay-by-bank transactions, in which the company has a significant portion of the billing volume. This was told by Alexandre Gonthier. Installment payment can help ensure that there are no non-sufficient funds occurrences when, for example, consumers go grocery shopping or pay other daily expenses. Alexandre Gonthier stated that this scenario could affect 20% of the United States population. According to him, consumers are turning a bill that should be paid today into a bill that they can pay 30 days later, and pay by bank is becoming an alternative to debit.
Alexandre Gonthier stated that one of the biggest incentives for users to leverage pay by bank in retail is how their bank account essentially travels with them, like PayPal. According to him, since that eliminates the authentication stage, the mentioned payment method can also become an alternative to Apple Pay.
The future of open banking frameworks in the United States continues to be what can be roughly called an unanswered question. At the same time, Alexandre Gonthier stated that he remains confident in the long-term tailwinds of pay by bank. In his opinion, with or without the regulatory mandate for pay by bank, the use cases that consumers come to discover and like will not disappear.
As we have reported earlier, Mastercard Rolls Out Digitally Connected Credential Offering Multiple Payment Options.
