Trustly CEO: Loyalty and Savings Will Spur Consumers to ‘Go Bank-Direct’ at Checkout

The future of open banking seems unsettled. The Consumer Financial Protection Bureau’s rules governing data sharing and use among banks and FinTechs may — or may not — be rolled back.

Despite the regulatory uncertainty, pay by bank at retail, which uses open banking to enable direct payments between bank accounts, should see a wider embrace in the United States, Trustly Inc. founder and CEO Alexandre Gonthier told Karen Webster.

Much depends on getting consumers to switch from debit and credit cards. Merchants have some work cut out for them to educate and incentivize customers to choose pay by bank.

The challenge shows up in the numbers. The PYMNTS Intelligence report “Consumer Sentiment About Open Banking Payments,” a Trustly collaboration, revealed that although 46% of consumers are interested in making open banking payments, only 11% have done so.

“It’s not an easy task to crack retail with pay by bank because of Visa and Mastercard’s presence,” Gonthier said.

But part of the appeal of pay by bank from the merchants’ standpoint is that they can save roughly 1.5% that they pay on the cost of payment processing, he said.

“Open banking gives us granular visibility into a consumer’s risk profile, and that gives us the ability to compress the pricing that merchants are charged,” he said.

Consumer Protection

Gonthier also said that pay by bank is a safer payment choice than paying with cards, notwithstanding the zero liability protections that the payment networks have advanced over the years.

When consumers pay with their bank accounts, they’re protected by Reg E, which states that bank customers have the right to ask for their money back simply by making a claim with that financial institution. There are no workflows for banks to charge consumers, so, in Gonthier’s telling of it, “they always say yes” to reimbursement, “and the dispute resolutions favor the consumers.” For those consumers aware of the fraud prevention features of pay by bank, 32% say their interest in that payment choice increases.

Banks have already been using APIs and the enhanced connectivity brought by biometrics and other authentication tools (before codification of open banking rules) to make the process of paying with a bank account easy, even in Europe, which is a fragmented commerce landscape, Gonthier said.

For Trustly, which is based in Sweden and enables pay by bank in Europe, “you click on the pay-by-bank [option] in each country, and you authenticate, simply, with your thumb or your face,” he said.

Those mechanisms are simpler than card payments, as they sidestep the manual entry of card details such as 16-digit primary account numbers if cards are not already on file, he said.

Back to the Decoupled Debit Future

Gonthier told Webster that the move to pay by bank at retail is still a bit of an uphill climb, where consumers don’t have a fundamental reason to use it. For most consumers, pay by bank happens when they pull out their debit card.

What’s needed is something “extra that debit cards don’t provide,” he said, where the past may be prologue.

“I’m actually betting that we will go back to the future,” Gonthier said. “The future is what the past taught us … 20 years ago with decoupled debit.”

Decoupled debit cards, which through the past few decades have been issued and operated by merchants or organizations, were and are linked directly to a customer’s bank account through a third party (most recently challenger banks).

Those cards have typically been attached to loyalty programs, which will be a key value-add feature for pay by bank, Gonthier said.

Loyalty programs will provide that consumer incentive to switch, he said. The joint research by PYMNTS Intelligence and Trustly indicated that when consumers are presented with cash-back discounts or loyalty benefits, their interest in open banking payments surges by 72%.

Merchants’ loyalty programs can be fine-tuned, underpinned by the wealth of data tied to the connections between merchants, banks and FinTechs. Trustly is educating retailers that loyalty programs will drive more active consumer transactions over a long-lived relationship, as firms realize the savings from payment processing and ramp up rewards points for everyday spending, such as at the gas pump, he said.

Looking ahead, Trustly is exploring providing installment options for pay-by-bank transactions, where the firm has a significant portion of the billing volume, he said. Installment options can help ensure that there’s no non-sufficient funds occurrence when, for example, consumers go grocery shopping or pay other daily expenses (a scenario that Gonthier said can impact 20% of the U.S. population).

“You’re turning a bill that’s due today into a bill that you can pay 30 days later,” he said, and pay by bank becomes a debit alternative.

The Long-Term Tailwinds

Gonthier predicted that one of the biggest consumer incentives to use pay by bank at retail is how their bank account essentially travels with them, like PayPal.

Because that “eliminates the authentication step, pay by bank has the potential to become an alternative to Apple Pay,” he said.

So, while the fate of open banking frameworks in the U.S. may be a question mark, Gonthier said he remains confident about pay by bank’s long-term tailwinds.

With or without a regulatory mandate, he told Webster, for pay by bank, “the use cases that consumers come to discover and love … they’re not going anywhere.”