The Payments Roundup team recently sat down with Alexandre (Alex) Gonthier, Founder and CEO of Trustly, Inc., to explore the evolution, current status, and future of Pay by Bank, also known as Open Banking-enabled payments. This payment method, initially developed over two decades ago, is gaining relevance as merchants seek to reduce transaction costs and improve the customer experience.

History and Origins

Pay by Bank emerged around 25 years ago as a cost-effective alternative to traditional card networks like Visa and Mastercard. It was initially used for micropayments on early e-commerce platforms, particularly for copyrighted digital goods during the Napster era. The concept originated in Europe and the APAC region, leveraging IP address mapping to enable transactions. Early adopters included industries such as telecommunications and insurance, where recurring payments and frictionless transactions were especially valuable.

Current Landscape

In the United States, Pay by Bank has lagged in adoption due to an e-commerce focus on growth over cost-efficiency. However, with the plateauing of online growth, attention is shifting toward reducing operating expenses, making ACH-based payments more attractive. ACH is the most comprehensive payment rail in the U.S., handling over $86.2 trillion in transactions annually, and it supports a wide variety of transaction types.

Key best practices for successful Pay by Bank implementation include:

●        Comprehensive Bank Connectivity: Ensuring access to all types of bank accounts, not just those from major banks.

●        Minimal Consumer Friction: Utilizing “Click to Pay” solutions that complete transactions in under two seconds.

●        Advanced Security: Trustly employs a secure method called split tokenization—developed with NACHA—which eliminates the storage of credentials and enhances fraud resistance.

●        Guaranteed Payments: Trustly guarantees payments even in the event of non-sufficient funds or account closures, protecting merchants from losses and chargebacks.

●        High Approval Rates: Trustly leverages consumer banking behavior and risk models to approve payments even when accounts temporarily lack funds, helping to reduce declined transactions and improve customer satisfaction.

Looking Ahead

The future success of Pay by Bank depends on both merchant and consumer adoption. For merchants, the financial incentive is compelling: ACH transactions cost significantly less than credit card payments. A $100 transaction might cost $0.30 with ACH compared to $3.00 with a card, yielding substantial savings, especially in recurring billing scenarios. Additionally, checking accounts provide an “evergreen” payment method, unlike credit cards that expire.

However, consumer adoption requires incentives. Strategies include:

●        Rewards and Loyalty Programs: Retailers like Kroger and Cumberland Farms are offering additional benefits for Pay by Bank users.

●        Improved Approval Rates: Consumers avoid payment denials and enjoy smoother checkout experiences.

●        “Float” Capabilities: Trustly can approve payments based on anticipated deposits, mimicking the float benefit of paper checks.

Industries such as telecom and insurance have already seen over 50% adoption rates, with Verizon offering discounts for bank-based payments. The ultimate goal is for merchants to reinvest the savings from reduced payment fees into customer incentives, boosting loyalty and average purchase size.

In summary, Pay by Bank is a transformative, secure, and cost-efficient payment method that, when implemented correctly, benefits merchants, consumers, and payment providers alike—a true “win-win-win.”

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Learn more about Trustly on their website or contact their team directly through email.

By Dean Sheaffer