It’s said that imitation is the sincerest form of flattery. If that’s the case, payments industry veteran and Trustly Inc. CEO Alex Gonthier should feel quite validated these days.
While he is currently in charge of one of the leading proponents of open banking and pay-by-bank solutions, Gonthier’s worldview of pay by bank stretches back over decades, to when he created the model for direct carrier billing-based payments as co-founder and CEO of iPIN/Valista. And when someone like JPMorgan CEO Jamie Dimon namechecks your model and then executes on it, that’s a source of pride.
“Now you see companies like JP Morgan working with Mastercard saying they’re offering pay by bank,” Gonthier told PYMNTS CEO Karen Webster recently. “You see Stripe that has come to market with a solution as well. You see startups like banks and others that have also jumped into the market to say, ‘I want to go after this big prize.’”
Trustly’s own growth is spotlighted by the fact that last year the company handled $60 billion in total payment value and will approach $100 billion in TPV this year. It’s a validation for Gonthier and his company, which has been racking up wins in the pay-by-bank and open banking categories.
Open banking has also seen significant developments. The Consumer Financial Protection Bureau (CFPB) has published its initial Rule 1033 on consumers’ rights to access their bank data, which is aimed at creating a regulatory framework for open banking in the U.S. A final ruling is expected later this summer or early fall, after a comment period.
“It guarantees the future of the industry and the model that we have brought to market,” Gonthier said.
Gonthier sees pay by bank and open banking offering several advantages over traditional card payments. For billers, pay by bank can significantly reduce card acceptance fees. For consumers, it provides an evergreen account that doesn’t expire and has a lower decline rate due to simpler risk engines.
Trustly differentiates itself by offering a guarantee on its transactions, absorbing any losses due to insufficient funds or fraud. “Our transactions are fully warranted in real time,” Gonthier said. “When we respond to a merchant API call saying, please process this, we say, ‘Yes, approved.’ Then we stand by our ‘yes’ response.”
The use cases for pay by bank and open banking are diverse and growing. Gonthier pointed to billers, such as AT&T, Verizon and T-Mobile, that have seen success with pay by bank as consumers are accustomed to paying bills with their bank accounts. Financial services, such as remittances and wallet funding, also benefit from the lower costs associated with pay by bank. Other markets where pay by bank has gained traction, he said, include online betting, cryptocurrency exchanges and travel.
Gonthier highlighted the success Trustly has had in the online sports betting market, where pay by bank has been a natural fit due to limitations on credit card usage and transaction limits associated with debit cards.
“You have the FanDuel and DraftKings and the BET MGMs of this world,” he said. “And you have a state-by-state legalization process that has been, for us, an extraordinary boost because what happens is that we sit on top of a market that’s growing organically, state by state, without us having to do anything.”
However, the biggest hurdle for pay by bank is cracking the eCommerce code.
“The thing that’s interesting is that no one has cracked the code yet on eCommerce,” Gonthier said. “No one has cracked the code because we’re fighting against credit cards that have extremely rich rewards programs.” To compete, he said, pay-by-bank providers will need to offer incentives to consumers, such as cashback or rewards programs, without eroding the cost savings for merchants.
Trustly is finding success in eCommerce in the travel sector, and with payments that traditionally have been done with debit cards, including healthcare and vet bills. “You can think of us as the ‘next-gen’ paper check,” Gonthier said. And Trustly’s platform model can also help break payments into installments, much like Klarna and Affirm.
Despite the challenges, Gonthier remains optimistic about the future of pay by bank and open banking. He said Trustly is focusing on operating its business at scale, ensuring its service works 24/7 and allocating resources to innovation. The company is bringing new products and features to market, such as responsible gaming solutions that leverage the data access provided by open banking.
“In open banking, you have the absolute unique advantage over debit cards, the absolute unique advantage of seeing a consumer’s transactions in real time,” Gonthier said. “And with that, we actually see them on debit cards, on Venmo, on PayPal, on Zelle, on paper checks, wire transfer, we see everything.”
As pay by bank and open banking continue to gain momentum, Gonthier is confident that the benefits for consumers and merchants will drive adoption and innovation in these alternative payment methods.
To illustrate his vision of the future of payments, Gonthier shared an anecdote from an experience at Park City, Utah, which he admits is not the cheapest place to ski. At the end of a meal in a rather upscale restaurant, he was presented with the check with an option to pay with a credit card for a fee or a debit card without one.
“At first, I gave my credit card, not looking at the check. Then it came back with the extra fee. I was not happy at all. I said, no, no, no, we’re going to cancel that. Here is my debit card.”
Although not everyone has the cash in their bank account to pay for a large-ticket purchase by flipping credit to debit, Gonthier believes his experience is a harbinger of things to come. “Everywhere in the U.S., you can use a credit card to pay for gas. It’s one price, and cash or debit is another price. It’s coming. People want an alternative to the status quo.”
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