Pay-by-Bank Solutions Signal New Era of Payments

Solutions in search of problems rarely scale — something especially true when it comes to payments, where the focus remains on enhancing user experience and efficiency.

With that focus in mind, PYMNTS sat down with Trustly Vice President of Enterprise Growth Ross McFerrin to hear his thoughts on the key drivers of payments modernization for the series “What’s Next in Payments: Payments Modernization.”

“The payments industry is constantly evolving, and when you look at the U.S. in a very card-dominated market, you’re seeing a material shift right now,” McFerrin said.

He cited open banking, changing consumer preferences, and technological advancements including the rise of artificial intelligence as driving this shift.

While open banking is not a new concept globally, the potential for its upcoming regulatory adoption in the United States could demarcate a new era as banks are mandated to provide secure access to their data to third-party service providers, facilitating more integrated and user-friendly financial services.

As open banking regulations mature and faster payment systems become more prevalent, McFerrin emphasized that the landscape should expect a broader adoption of seamless, real-time payment solutions that create “very tangible benefits” for both businesses and end-users.

This regulatory shift will reshape how financial data is accessed and used, fostering a more competitive and innovative environment for payment solutions.

Modernizing Payments by Meeting End-User Needs in a Dynamic Landscape

Consumer preferences are also evolving, demanding more flexibility and efficiency in payment methods. Increasingly, today’s payment mechanism end-users expect the ability to make payments directly from their bank accounts without the need for intermediary steps, a demand that pay-by-bank solutions meet effectively, said McFerrin, noting that this trend reflects a broader shift toward instant transactions while reducing the dependency on traditional card-based payments.

Trustly, he said, has been processing pay-by-bank — or account-to-account (A2A) — transactions at scale for years, using automated clearing house (ACH) systems in innovative ways to manage risks and turn traditional deficiencies of the payment rail into strengths, including reducing the delay in processing and improving risk management. This not only benefits businesses in terms of cash flow but also enhances the consumer experience by providing immediate transaction confirmations.

And technological advancements are another key force reshaping the payments landscape. From the rise of AI and blockchain to the implementation of faster payment systems like the FedNow® Service and The Clearing House’s RTP® network, these innovations are making transactions faster, more secure and more efficient.

“We expect that core banking systems are going to need to undergo a very significant evolution in order to remain relevant and competitive,” said McFerrin.

While he admitted that the technical integration of these new systems poses a hurdle, McFerrin said collaborations between FinTech companies and traditional financial institutions are crucial. These partnerships can streamline the deployment of new payment solutions, making it easier for businesses to adopt and integrate them without extensive technical overhauls.

Unlocking Value to Steer the Future of Payments

Modern payment systems are increasingly using data to offer personalized experiences. By analyzing transaction data, companies can provide tailored recommendations and flexible payment options. For instance, a user with insufficient funds at the time of purchase but a predictable income can still complete a transaction, thanks to predictive analytics, said McFerrin.

AI and machine learning, in particular, are needed for managing risks and enhancing the security of transactions. These technologies enable real-time analysis and detection of fraudulent activities, providing a more secure transaction environment for both consumers and businesses.

By accessing real-time data, companies can assess a user’s ability to pay, predict fund availability and identify potentially fraudulent activities, McFerrin said, stressing that security remains a paramount concern in payments.

Still, against the backdrop of payments modernization, McFerrin said reducing the cost of transactions is a concern for merchants and ultimately has a direct impact on the consumer. The high interchange fees associated with card payments are a burden that modern payment methods, like pay-by-bank solutions which offer a cost-effective alternative, aim to alleviate.

Looking ahead, the landscape of payments is poised for further transformation driven by continued collaboration between FinTechs and traditional banks, as well as a broader adoption of seamless, real-time payment solutions.

By focusing on user-centric solutions that prioritize speed, security and cost-effectiveness, industry leaders can meet the evolving needs of consumers and businesses alike, McFerrin said.