Disruptive innovations don’t just change the game; they often level the playing field.
But transformative phase shifts only enjoy a real, scalable flywheel when they solve for an ongoing problem — and when that solution to the problem is both repeatable and easily digested by a wide and active audience.
Industry observers believe that open banking, or pay by bank, is poised to be one of those transformative phase shifts, at least for the payments sector.
Open banking payments leverage application programming interfaces (APIs) to enable secure and direct communication between different financial institutions and payment service providers.
“Digital natives know that serious companies offer serious services, and they tend to adopt them,” Alexandre Gonthier, founder and CEO at open banking FinTech Trustly, told PYMNTS CEO Karen Webster.
And while open banking is not yet a “consumer-focused or adopted term,” Gonthier said, he explained that open banking unbundles the functionality of online banking account credentials as a payment gateway by bringing that “bank sign-in functionality” to the billers or merchant side directly.
“There’s no account to create,” he said. “Just sign in with your existing online banking ID and password.”
This enhanced connectivity facilitates real-time, personalized payment experiences tailored to the individual’s preferences.
Consumers can authorize payments, initiate transfers and access transaction details through a single platform, eliminating the need for multiple payment apps or accounts.
“Fundamentally, [open banking] is an easy process where you just have to sign into your bank and that’s it,” Gonthier said. “You don’t need a card, you don’t need your bank account and routing numbers, you don’t need to fill out a bill or ship-to form because it can be done automatically for you. So, you end up with benefits that get adoption.”
But while open banking payments have the potential to revolutionize the way we transact by providing consumers with a seamless and personalized payment experience, they first need to be successfully commercialized across the payment ecosystem.
And a successful commercialization requires positioning open banking as a first-choice payment option.
Trust is branded by association, which is why Gonthier noted Trustly is focusing its attention on gaining share across the enterprise market particularly, rather than duking it out in retail’s trenches.
The transfer of confidence or trust from the brand of the merchant to the biller and ultimately deployed onto the payment method is a fundamental tentpole in the go-to-market approach of the open banking sector.
“We’ve observed very clearly that we don’t get at all the same adoption rates, the same conversion rates, with smaller, no-name eCommerce players,” Gonthier explained, adding that another reason for Trustly “skipping over” the retail sector is that “debit cards work.”
“We’re focused on the segments of the market where debit cards don’t work so well,” he explained.
In today’s digital age, end-users are faced with a plethora of payment options when transacting online.
That’s why, as Gonthier noted, being “preselected in the payment lineup with a premium placement” is a critical adoption flywheel for payment solutions.
“With great placement, you get great adoption,” he said.
After that, it boils down to the benefits — and the payment option proving itself in the market relative to the established incumbent rails by providing users an actual next-generation utility they can’t get elsewhere.
Among those benefits are open banking’s strong authentication controls, which remove unnecessary declines for merchants while simultaneously providing best-in-class protections against fraud and bad actors.
“Because it’s the bank that goes to multifactor authentication or pushes the consumer through multifactor authentication, we have a very high degree of certainty that we know who is behind that device,” explained Gonthier. “And the consumer gets protected by law. Paying in the U.S. with a bank account entitles users to zero liability for 60 days. They can even go to their bank and ask for their money back.”
Another benefit is open banking’s ability to bypass transaction limits for large purchases where “the only real competition” is a paper check, Gonthier said.
You have that whole sector of the economy where there are $1 million transactions and transactions above $10 million, he explained.
The difference between open banking and debit cards is that open banking relies on automated clearing house (ACH), the bank rail required to move the funds from the consumer’s account to the merchant’s account. ACH isn’t a real-time payment platform; it’s a batch solution.
And it’s that critical difference that Gonthier said he wants to explore in the future.
“Paycheck-to-paycheck consumers need help with their cash flow, and we have the ability to do just that,” he said. “We want to help play the float game.”