In the US, fast payments discussions have centered around person-to-person, business-to-business, bill payment, and digital wallet funding in/out scenarios. In 2022, RTP® processed $72B, the majority of this volume communing from PayPal and Venmo funding activity. Zelle has reached a highly respectable $629B in person-to-person payments, traversing into “person-to-sole proprietor” territory. ACH, the workhorse of bulk payments is, as we say “hotter than ever” with Same Day ACH seeing an 86% year-over-year increase growing from $943B to $1.758B annual volume. But what about consumer-to-business purchases? Is there an opportunity for the US to see momentum in open banking and fast payments move into the commerce domain as they are in India, Brazil, and other countries? What will it take – and are we ready – to “pay by bank”?

Yvette Bohanan welcomes Eric Shoykhet, CEO & Co-Founder of Link Financial Technologies, to this episode to share his thoughts on the topic.

Yvette Bohanan:

Welcome to Payments On Fire, a podcast from Glenbrook Partners about the payments industry, how it works, and trends and its evolution.

Hello, I’m Yvette Bohanan, a partner at Glenbrook and your host for Payments on Fire. Here’s a loaded question for you. How do you pay for things? Years ago I watched through a one-way mirror during a market research session, as that question escalated into a debate that nearly broke out into a fist fight. I’ve also been in more meetings than I care to recall discussing which payment methods we should accept on a website and germane to the discussion are all the follow-up questions: Would accepting them improve conversion rates? Attract new customers? Increase average ticket sizes? Or improve retention?

And ironically, I’ve been in a number of meetings where the notion of just making payments disappear was the goal. So the idea being that we are human and we just want to buy stuff and get our bill paid. We don’t want to think much about the mechanics of doing it. We just want it to work.

My guess is that these sorts of meetings are still happening and resonate with many of you who are listening, and it’s really tricky stuff. So when I learned about what our guest is up to, the phrases that came to mind were things like pushing on a rope or swimming upstream, going against the grain or tilting at windmills or maybe perhaps crazy like a fox. We’ll let you decide.

So here we are. Eric Shoykhet, CEO of Link Financial Technologies, welcome to Payments On Fire.

Eric Shoykhet:

Thanks for having me.

Yvette Bohanan:

I am so glad you are on this episode. I have questions for you. But before we jump in, can you talk a little bit about your background and how you got into the payments industry? We always like to ask people, particularly CEOs of startups, and then tell us a little bit about what you’re doing at Link Money so people understand why we’re asking this question of are we ready to pay by bank?

Eric Shoykhet:

Sure. So I started my career at Blackstone in the restructuring group, and after that I worked at a hedge fund covering a bunch of different sectors, including banks, banks in Europe, banks in the US, and actually payments companies. So was super familiar with the space from an investor perspective, covered a bunch of the larger publicly traded payments names, folks like Adyen, Visa, MasterCard, as well as a lot of the banks in Europe that were kind of embedded with payments infrastructure.

And then after my role in the hedge fund industry, I started a company called Atom Finance, which is a FinTech data aggregation and investment research platform. And then I started Link Money after that, kind of doubling down on the opportunity I saw to bring low-cost payments to the United States. And what we offer at Link Money is a pay by bank solution for merchants to embed in their digital or in-person checkout flow. And ultimately it enables merchants to save somewhere between 70% to 80% on the cost of payment processing versus cards.

So usually in the low call it 1% range versus cards often cost for merchants somewhere between 2% to 2.5%. Obviously that depends on the repetition of payment, customer payment frequency and kind of the average ticket size. But that’s generally a good ballpark from a merchant perspective. So you can expect somewhere between 70% to 80% savings. It’s a way lower cost payment method versus cards. It’s actually more secure as well. We see less actual and friendly fraud. So from a merchant standpoint, it’s awesome. It’s much cheaper, and it’s also very seamless and actually easier to use in many respects than cards from a customer UX perspective.

Yvette Bohanan:

Cool. Okay. All right. So we’re going to kind of dig in here because what I’m really, really interested in is you’re coming from a bird’s eye view of payments and banking and FinTech and all things in that vein. And this is what you’ve decided to invest all of your energy in. And so I want to kind of get into your brain here about what’s going on at the macro level, what’s your thesis, how we’re going to talk through all of this so that we can understand why you’re doing this.

It’s really intriguing. I’ve been in the industry for a long time and you’re not the first company I’ve talked with who’s trying to do this, but your timing might be pretty cool right now in terms of trying to attempt it. So I’m very intrigued.

Eric Shoykhet:

There’s always two parts to any good kind of startup story. One is obviously the right kind of idea and then team, but the second and perhaps more importantly is the right timing.

Yvette Bohanan:

Absolutely, absolutely. Okay, so let’s zoom out for a second and look at this trend. Open banking is kind of the precursor in a lot of countries for pay by bank. So it’s taking off around the globe. It’s just not as much in the United States so far. So we’re seeing 238% year-over-year growth in the UK, impressive UPI and PIX adoption in India and Brazil. PSD2 has the mandates at play here, nudging the EU into this space.

US has some headwinds. We don’t have mandates. We have 11,000, almost 11,000 banks and credit unions. We have the card interchange and revolving balances that really contribute to issuers PnLs, and we have two going on three fast payment systems, which could be a blessing or a curse. So you believe this all can be overcome here in the United States.

What macroeconomic factors are making you a believer and when are you thinking we’re going to see a sea change occur?

Eric Shoykhet:

Well, I’d say kind of zooming back out, this is not the first time that a specific payment trend would have lagged in the US having been more rapid from an adoption perspective in other markets. I can even go back to such a simple thing as the digital chips on credit and debit cards. That it’s something that existed in Europe forever before it came to the US and people were skeptical that it would ever happen, and then sure enough it did. And then contactless checkout and wallets.

So actually, if you actually look at the history of this in the US, pretty much all the things that people said wouldn’t happen and wouldn’t evolve in the US actually did. They were wrong on timing. The timing was always slower and a little more drawn out, but once it got going, it got going. So I would say that’s generally been the history of a lot of these sorts of payments in the US.

If you look at different markets, as you said across the world, you look at the EU, look at PIX in Brazil, you look at UPI in India, it’s pretty much every major market account to account payments is growing extremely rapidly and taking share from some combination of credit and debit cards. It really depends on the mix in the country.

The beauty of the US and why we decided to do this and why we think this is so compelling is this is actually from an economics perspective by far the best market to do this in. And the answer, the reason for that is extremely simple. It’s because interchange is the highest by far. We only cap pretty much debit interchange for certain large banks. Credit is uncapped, and I don’t think it has a high probability of getting capped at any point in the future, and debit despite the Durbin amendment and the cap for debit interchange for large issuers, usually, and again it depends on the merchant, somewhere around two thirds of debit volume is unregulated often for a lot of the merchants we work with.

So if you really think about the weighted average total cost of payments or interchange rate that a merchant pays in the US versus other markets, especially Europe, let’s use Europe as an example, it’s an order of magnitude higher. And on top of that, this is a larger market with just generally more total payment volume, more commerce dollars, and therefore it’s just a much more attractive market overall from an economic perspective to disrupt and to drive lower cost payments.

Now of course as I’m sure you’ll ask, the pushback in the US, oh, everyone loves their credit cards rewards, blah, blah, blah, the usual spiel. So that’s true in terms of credit cards being obviously more heavily used in the US versus other markets. But the reality is if you look at the underlying payment volume, we don’t need to necessarily take share from all pieces of the puzzle. Debit volume for most the merchants we work with is around 30% of volume of which two thirds is unregulated. And it also really depends on the vertical that you’re talking about.

So the view that, oh my God, everyone loves their credit cards in the US and that’s all people use is really untrue. Debit is actually taking share for credit as well. And then it really depends on the specific vertical and the type of payment volume that you’re talking about.

So we really break down the world into looking at different verticals. We tend to like verticals where the merchant can to some extent control the checkout flow and generally where there’s an existing and recurring relationship between the merchant and the customer. So we don’t kind of focus on random one-off ecommerce payments. We like to see some repetitive purchase behavior. Doesn’t have to be a subscription, but generally we like a situation where the customer is spending a decent amount of money and doing it a couple times a year with that merchant. And those are the areas where the economics and the savings of our pay by bank product, that Link Money can be the most value add from a merchant standpoint.

Yvette Bohanan:

A lot of times when we look at merchants, we typically see that the first thing they want is they want to get paid. That’s kind of a no-brainer. And then they want incrementality. That’s a big deal. So they’re looking for ways to increase their average ticket or the checkout sale. There’s all kinds of techniques to do that. And then lowering costs. And you’re focusing on the cost component in your thesis quite a bit.

So what are you observing that makes you believe cost reduction is more important than revenue and incrementality right now in the market? Can’t merchants look elsewhere to lower their costs and stick with things that are more tried and true in terms of payment methods rather than integrating or adopting something new?

Eric Shoykhet:

Yeah, great question. So the first part of my answer and the previous question was really about the general kind of why are the economics in US attractive to disrupt. Largest market, highest cost of payments. So this is more of a kind of why now basically. And I think what we’ve seen is we’ve seen a dramatic shift in merchant mentality from the old perspective, which I’ll describe as accept all forms of payment, no matter what, let the consumer choose, the cost of payments is an output and just kind of let it be a free for all and we just want to get paid.

So I’d say that was true probably up to pre-COVID. We’ve seen a dramatic shift in that for two reasons. One is, if we look at ecommerce as an example, a lot of companies are X growth at this point. Generally a lot of these merchants are facing decent macro headwinds that we think will continue to exist or get worse depending on how things evolve. And so when you’re in a situation where you’re not really, I take an ecommerce company, I was used to maybe growing, call it, 20%, 30% a year, my business doubled in COVID and now all of a sudden I’m sequentially declining.

So when you shift from a business that’s growing very rapidly to an X growth business, your mentality totally shifts from, “Well, we should accept all forms of payments, we should make it easy for the consumer,” to, “Oh my God, our margins are terrible or negative and we need to reduce costs.” And so you start going line by line and looking at the levers you have as a business. And the cost of payments is extremely, extremely painful for a lot of merchants because it’s profit dollars, it’s not revenue dollars, and any savings there goes right to bottom line. So that’s kind of part one.

Part two is interchange rates have gone up dramatically over recent years. All the networks, Amex even more recently is adding extra fees for some of the premium cards, which is making it even more painful if you’re a merchant that deals with wealthier consumers who are using the Amex Platinum or other cards, and you don’t control that. The customer kind of just picks whatever card they want and your rising and painful cost of payments is an output of that.

So we’ve seen a dramatic merchant mentality shift in the merchants we talked to, and this ranges from smaller merchants to very, very large merchants where they’re really saying, “Cost of payment processing is a major pain point for us. We need to reduce it. And so now it’s not about just allowing every form of payment under the sun, but we want to be selective.” You don’t see necessarily Apple Wallet in a lot of these situations. Sorry, Apple Pay, excuse me, because that’s an added cost on cards. You see BNPL in some situations, although kind of the economics and the fees don’t really make sense. PayPal’s super expensive. It’s actually losing share across ecommerce, if you look at their … You can look at their public filings, they’re actually basically losing share at this point.

And so the reason for those specific forms of payment not really necessarily doing as well or merchants rethinking them is because the cost of payment is so high. So when we talk to merchants now, they love the idea of being able to dramatically reduce their cost of payment processing by 70% or 80%. Obviously they want a payment method that is secure and easy for the consumer, which pay by bank is. Consumers are well-trained at this point with the account linking UX, not necessarily in this context but in other context.

And so it’s kind of a beautiful setup and timing where merchants are desperate to improve their cost structure. Growth has slowed or a lot of these companies are already X growth. And on top of that, interchange has been rising in many cases quite dramatically over the last few years. So the cost benefit landscape has dramatically shifted and we think has reached a breaking point. And now you’re seeing when we talk to large merchants especially, folks are really thinking about what is my pay by bank strategy going into next year or this year for some of the earlier merchants we’re working with. And they know that it’s something they really need to think about on their roadmap. And it’s also by the way, for a lot of these larger enterprise merchants, something they really offer in other markets.

That’s like the final piece of the puzzle here, which is, you’re right that this is a novel payment method in the US, but it’s certainly not a novel payment method for these merchants to operate in Europe, which a lot of them do, or India, or Brazil. And they all offer pay by bank or account to account in those markets.

So this isn’t like when you’re coming to them now, they understand what this is. Obviously they always want to understand adoption, the specifics of how it works in the US, but it’s actually something they’re extremely familiar with, especially for these merchants that operate in several markets.

Yvette Bohanan:

When you’re talking with merchants, when they say, “My cost to accept this payment cards in particular has gone up dramatically,” what are they telling you? Has it gone up 30 basis points, 20 basis points on average? What are you hearing in terms of what’s dramatic? What does that mean?

Eric Shoykhet:

Yeah. So for a lot of the merchants we talked to, I think they baseline from pre-COVID, and for many of them their call it aggregate cost of payment processing is up somewhere between 30% to 40%.

Yvette Bohanan:

That’s a lot.

Eric Shoykhet:

Yeah.

Yvette Bohanan:

That’s a lot. Because normally …

Eric Shoykhet:

And it’s something that they can’t … It’s not just that it’s going up. It’s also that they can’t really control it. So it’s this feeling of kind of helplessness, if you will. And I think, and even if you look at small merchants, I don’t know if you’ve seen this, but I was just at a ice cream store yesterday in the West Village in New York City and literally they had a sign that says if you pay with cash, we’ll charge you less. If you pay with card, we’re adding a fee. And I saw that actually at several merchants yesterday in the Village, including a Bode, and that’s not something I’d ever seen before.

Now we don’t really work with small one-off merchants. We’re really focused on enterprise scale merchants generally with more of a digital payment flow of some kind, even if they do have some in person. But it’s just something you never would’ve seen five years, 10 years ago. It’s not common. Maybe at a gas station or whatever, but not in the context of retail and you’re starting to see it.

So I think that is again, because when you’re in a macro environment of slowing growth and high inflation, companies are looking to cut costs. And when you overlay the fact that cost of payment processing is up 30%, 40% over the last couple of years, that puts a bullseye on reducing it and pulling levers to do that. Even if there were some of the traditional worries of, “Oh, is this just a new payment method? Is this more friction for customers? Are they familiar with it?” You’re kind of just like, “Well, we need to save money, so we need to take a shot.” And that’s actually been an extremely important merchant mentality shift for us.

Yvette Bohanan:

So let’s switch over to consumers for a second. The merchants, typically they’re reluctant to offer a new payment method unless there’s anticipated adoption, actually demand. They want to see people wanting it. And I think demand is part of what’s sort of propelled buy now, pay later if you look at that. It costs more for merchants typically to offer buy now, pay later than … Or it’s comparable to cards. Sometimes it’s more. They have some benefits there. They’re getting guaranteed funds deposited. The consumer adoption of it and the consumer demand for that has been off the charts, probably for the same macroeconomic reasons we’re talking about here with the merchant side in a way.

Eric Shoykhet:

Yeah. I mean I think with respect to BNPL, I think it’s maybe more of an issue of giving people who shouldn’t have access to credit maybe in certain situations credit, but maybe that’s a separate conversation.

Yvette Bohanan:

Actually, we just recorded a really interesting podcast with LexisNexis and they did a longitudinal study, a big data study on this. And surprisingly there’s sort of multiple segments, multiple cohorts adopting it for different reasons, the consumers. So there’s actually a lot to that. I’m not going to digress because it’s a whole podcast people can go listen to.

But the question I have is, you look at the checkout experience in flow, particularly on mobile, but a lot of places, you see digital wallets even being offered as a form of payment before you get to the checkout page, like pay with Apple Pay right here on the page where you’re selecting the item or PayPal or whatever.

Now you’re saying press this button that says pay by bank to the consumer. What’s going to make them do that rather than the debit card that they already have set up or they’re already using and they feel comfortable with and they have zero liability protection and they have a really nice dispute process if they don’t like it and on and on and on? How do you get the consumer really jazzed here? Or is it mostly just taking away other options, letting them only see pay by bank?

You’re working with merchants already. What’s working here for them in terms of getting some adoption, and what kind of adoption are they seeing?

Eric Shoykhet:

Yeah, it’s a great question. So look, first, as I said before, the verticals we focused on are where there’s some existing relationship between consumer and merchant, generally known customer to known merchant, and generally some amount of frequency of purchase, again, a few times a year, and ticket sizes that aren’t $5, let’s put it that way. Usually looking for tickets at least in the kind of $20 to $30 range with some repeatability.

And so in those situations, the reason we focus on those areas is because the economics and the savings for the merchant are very meaningful, meaning the savings throughout the whole value chain will be sufficient to really make the merchant care. So that’s like the bedrock principle. And then ultimately the merchant actually has quite a bit of leverage depending on the specific vertical and the type of product, but in many of these situations on nudging the consumer.

So there’s several ways they can do that. The first is just simply placement in the checkout flow. So where they put it? Is it placed sooner? Is it placed as the first option above cards? Is it placed as second option below cards? And that kind of just simple UX placement is super important.

And then comes CRM. So putting banners, saying this is the preferred payment method, emailing existing customers with card on file to switch their default and saved payment method over. So that’s kind of the second lever.

And you’d be surprised. Just those two levers, we often see customers getting high single digits percent of adoption, anywhere 8% to 10% without any economics, just kind of preferred UX placement, good CRM. You can put, I don’t want to see, you can put almost anything to check a flow and get some adoption, but it’s kind of true, maybe not 8% to 10%, but I think just existing in there often you can get a few points of adoption. So it’s kind of the first two pieces.

And then the third piece is obviously economics. So this is going to depend on again, the specific type of payment flow, the repeatability of purchase, the average purchase amount. But for merchants who have decent purchase amount and more repeatability, the savings can be very, very large. The actual dollar savings, it can be tens of dollars more hundreds depending on the exact amount of the purchase and how often the customer purchases it.

So it’s worth a lot to the merchant to get someone to start using this as a payment method or switch their saved or default payment method. And so they can hit the consumer at the time of checkout or after if it’s a card on file with a message saying, “Hey, you just paid with this payment method. If next time you pay with pay by bank, you get some discount, you get some dollars back or you get some free good,” if it’s merchandise. So a real world good that they can to some extent give to the consumer for free or some amount of it for free. So the third lever is really the economics.

So using those three levers, we often see merchants getting 15% adoption. It can be higher if it’s a case like let’s say storage companies or insurance or marketplaces where the merchant can be more aggressive about nudging the consumer and controlling the checkout flow. So in those situations you can see 20% to 25% adoption, even higher if it’s where the insurance, let’s say where you’ve already picked the product and the merchant can basically tell you to use whatever form of payment that they want because you’ve already selected the plan in that example.

But we see using, merchants who are sophisticated using those three levers, 15% adoption is a pretty good benchmark. And it’s not totally dissimilar to the sort of share of checkout that you would see from something like PayPal, which tends to be around there.

Yvette Bohanan:

Yeah, no, that’s quite respectable numbers.

Eric Shoykhet:

I think remember, a lot of the volume is actually debit. There’s this notion everyone anchors around credit, but a significant, for many of these merchants, 30% of the volume is debit. So those consumers are actually not getting anything, right? They’re not getting rewards. And there’s this whole narrative, especially among the younger generation of debt-free, anti-credit, the interest and fees associated with credit cards. So debit has because of that been taking share from credit. And from a merchant standpoint, debit’s quite painful when a lot of that volume is unregulated and the consumer’s not actually getting anything for it.

And so in the situations that I described before where the merchant’s using, call it, preferred UX placement, CRM and economics, that can get a lot of people to switch over from debit and it also will take some share from credit, even if those consumers are getting some rewards because the merchant, depending again on LTV and the extent of the relation and repeatability of the relationship, they can offer the consumer more than the consumer’s going to get on just that transaction from a rewards’ perspective, whatever it is, 1%, 1.5% cash back. They can offer more and they can actually front load that to the consumer because they understand the LTV of the customer and they can actually give you more, they can give you 5% or 10% back because they can underwrite, hey, the lifetime savings of getting this customer to switch from credit or debit card to pay by bank is worth 10% of this individual purchase to me. So they can front load a lot of those economics and incentivize the behavior change.

And from a consumer standpoint, you can capture some of those economics. You’re not getting anything from debit as it is. And our UX is super seamless. You just pick your bank and either you enter your credentials or if it’s one of the larger banks, they’ll actually de-link you and you can authenticate with face ID through the existing bank mobile app that you have on your phone. So it’s very seamless UX. You don’t need to pull out a card, you don’t need to enter the long card number and expiry and CVC and all these things. And so it’s arguably actually a more seamless UX.

Yvette Bohanan:

And I get what you’re saying where you’re focusing your sweet spot with the merchant community. But what if there is a dispute? What happens if I didn’t want this? I didn’t really need it. I don’t like. It’s the wrong whatever. I want to return it. How is that handled here versus because we all know it, debit, you call your bank, the 800 number on the back of the card, you lodge a dispute or whatever and there’s a very well known process. What’s going on here with pay by bank?

Eric Shoykhet:

Yes. So that part is actually exactly the same in the sense that you have two routes as a customer. Obviously you go to the merchant and then complain and ask for your money back. If the merchant decides to do that, they can hit our APIs and issue a refund, which is quite simple.

The second option is to go to your bank, your issuing bank just like you would with a debit card, call them and ask for the debit. That was the amount of money that was debited from your account to be reversed. So in this case it’ll be an ACH reversal request and it’s kind of the same sort of process. It gets adjudicated and then the money gets credited back to your account or not.

So that actually is governed for transactions that we move via ACH, which is until we can talk about FedNow or whatever another time, but is governed, basically NACHA governs that process. So there’s a specific process, but it’s basically from a consumer perspective, the same two options, which is either you go to the merchant complaint or you call your bank and initiate instead of a debit or credit dispute, it’ll be an ACH reversal.

Yvette Bohanan:

And that’s a little bit less consistent than the cards, but it’s kind of the same principle.

Eric Shoykhet:

Yeah, same principle. It’s less of an in-app thing depending on who you’re … Yeah, that also depends on your bank, but you have-

Yvette Bohanan:

It’s bank to bank kind of environment, right? And I think that’s true of any, we’ll talk about some of the other payment methods out there right now, but you use Zelle for example, or it’s a bank by bank thing in terms of limits, in terms of how many transactions you can do a week, a month. Sometimes they’re the same as the Zelle operating rules, sometimes it’s less, they have some prerogative here. You go to fast payment system, same thing. So there’s a little bit of around all of these payment methods that are account to account, depending on who you bank with, your results may vary a bit, right?

Eric Shoykhet:

Yeah. Look, there’s a general obviously NACHA process. The responsiveness and customer service of your bank will dictate some of this obviously, which is if you have a bank that’s better, then they’ll be better. If it’s a bank that’s worse, it’ll be worse than the margin, so for sure. But there is a very … I think there is a misnomer that credit and debit have these regulated processes and in this situation there wouldn’t be. There actually is a very specific and really well regulated process because it’s the original kind of NACHA ACH reversal process is what we leverage.

So yes, it’s not as simple if you use let’s say Amex as clicking dispute in your app, there’s slightly more friction, but it wouldn’t be … It’s not so dissimilar, especially if you use a more mid-size or smaller bank from doing a debit card dispute.

Yvette Bohanan:

So right now you’re working in the world of ACH, right?

Eric Shoykhet:

Correct.

Yvette Bohanan:

Okay. So ACH it’s a workhorse. It’s hotter than ever after 50 years and going strong. They have same day ACH. That’s growing like crazy. But person to person transactions or push credits are sort of in the realm of your web credits are person to person only. Your corporate transactions can be credit push transactions, but consumer to business payments are still debit pull for the most part. So you’re actually facilitating a pull, right, out of-

Eric Shoykhet:

Exactly-

Yvette Bohanan:

… this right now with Link. Are the ACH operators missing the boat here? Should they have a consumer to business credit push? I mean they can do it for P2P.

Eric Shoykhet:

Yeah. So just so folks understand. In the flow when we tell a merchant that the payment is good, we actually guarantee the funds. So when we say the merchant can expect to save 70% to 80% versus cards, we’re offering a true kind of card-like payment method where the funds are guaranteed, the merchant knows it’s going to settle. And the things that we guarantee are exactly the same as actually as cards, meaning we guarantee sufficiency of funds, we don’t guarantee valid reversals or the equivalent of chargebacks. So I just want to [inaudible 00 the landscape.

So the way that the money actually settles and moves is kind of on our infrastructure on us, but from a merchant standpoint, we tell you payment’s successful, you’re good, the funds are money good and they will settle just exactly like a card.

From the actual money movement perspective, look, ACH is very cheap, it’s very reliable. There’s a specific process and it’s very useful. Credit, to the extent that there’s new payment methods like FedNow that offer real-time credit push, that’s great. For certain use cases where they’re higher, maybe purchase amounts and more one-off, but it doesn’t solve the real pain point that we’re focusing on in a lot of cases, which is some amount of repeat purchase. You want to have a card on file in some of those cases. And in our situation of pay by bank, the safe payment method works just exactly the same. You have a safe kind of bank account on file.

That’s ideal for a lot of merchants and credit push where you have to authenticate each time is somewhat problematic. And so that’s the core issue that we see with FedNow is that it’s only going to have real-time credit push. There’s no view of having real-time debit pull on the roadmap for FedNow. And it’s kind of the same thing with RTP.

And so the reality is for a lot of the use cases that we care about, ACH is really going to be the workhorse for a long time. And I’m sure as folks understand listening to this, because it’s not real time, that means there’s a lot that we’ve had to build to deal with on the one hand trying to guarantee or wanting to guarantee those funds to the merchant. At the same time, obviously we’re not settling with the consumer and moving the money in real time. So that’s the middleware and complex infrastructure we’ve had to build to turn ACH into a suitable engine under the hood where we can still present a card-like alternative payment method for merchants. But I think the reality is we’re going to be using this for literally the foreseeable future because the alternatives like RTP and FedNow only involve real-time credit push.

So for the use cases where that makes sense, where it’s more one-off in nature, larger amounts, we will certainly, we love. That’s great. Real time is awesome. We’d love to settle in real time, and we will use that and leverage that for those situations. But ultimately I think a lot of the volume for pay by bank in our view of the world is going to still be on ACH for the foreseeable future.

Yvette Bohanan:

I think that’s true. I mean at the same time you see Zelle is doing pretty well with P2P adoption. They’re at 629 billion in 2022. RTP’s up 44% at 72 billion. A lot of that is actually Venmo and PayPal funding transactions.

I don’t know. You’re sitting in a really interesting place. You’ve created basically what I would say a lot of compensating middleware firmware or whatever to basically handle the fact that these are debit transactions, you’re guaranteeing funds, you’re making it a good funds transaction for the merchant, but you’re also telling them these sort of recurring situations, these subscription based payments and that you’re not going to be forcing the consumer to make a decision to push money to the merchant every time the bill is due or that they’re coming.

So you’re kind of playing into something that a lot of merchants that we talk with get a little bit concerned about, which is if I switch to credit push, which is lower cost, I’m going to be reminding someone that they need to pay me every month and they may decide they don’t want to and that can hurt my revenue.

Eric Shoykhet:

Yeah, it’s too much friction. I mean I think the reality is that, and again, it’s not just subscription, it’s literally just any situation where I’m using … I want to get tickets on a website that I use a lot, let’s say StubHub or Ticketmaster, or if it’s in Amazon or Walmart, it doesn’t matter, any situation where I’ve bought or I buy or I plan to buy several times from that merchant over the lifecycle, it’s just an added point of friction ’cause I have to reenter or re-authenticate payment information every time.

And so that’s a point of friction I think merchants don’t want. They want to have card on file or in this case bank account on file. And actually the beauty of pay by bank is it’s actually a much, we’ll call it, more sticky and stable form of payment. People don’t really change their bank accounts, their primary bank account. They don’t expire. There’s no kind of card update or issue. And so they’re actually really stable and what we’ve seen is less call it involuntary payment churn, especially for subscription type merchants because it’s just much stickier and more stable form of payment where you don’t have to have the customer come in and if they cancel the card, put in a new card or update the expiry or things like that.

Yvette Bohanan:

Yeah, that’s true. And you have, just for those listening who know a lot about fast payment, there is this sort of notion of a delegated payment where you can delegate to your bank to go ahead and if there’s a request to pay on a fast payment system, the bank can basically say, “Oh, Eric said I could go ahead and pay this amount, this pushed money over to the receiver.” But that’s typically, look, they’re looking for a range, a consistency in the pattern. You’re sort of putting that merchant on a personal positive file if you will. Go ahead and pay that merchant on my behalf to your bank.

But there is that sort of area you’re really kind of introducing this in, which is sort of gray. It’s like it’s not always the same amount of money. And I’m transacting, I’m buying something once, twice, three times a year. I don’t know how much I’m going to be spending and I’m not comfortable doing that sort of delegation with a request to pay in the fast payments world, but I could do this with an authorization by authorization sort of thing in this world.

Eric Shoykhet:

Yeah. And you can imagine, I mean look, when you use our Link Money pay by bank product through a merchant, the first time you have to link, the consumer goes through that linking flow and that’s it. Once that’s done, it’s done once, it’s saved. As long as you obviously save the payment method, it’s saved. And then if you use us through another merchant, we’ll actually recognize you through your device. You do not have to relink. And so it becomes a very seamless UX actually, even more seamless than cards because we’re actually able to recognize you across merchant.

You can think of it almost as like a one click checkout type of flow for if you use us through a second merchant, whereas with a credit card or debit card, you’d obviously have to reenter all of the information.

We think the UX is quite nice for consumers and it really jives with what merchants want, which is a low friction payment method that can be saved and doesn’t need to be re-authenticated every time. And that’s why for a bunch of reasons, the credit push real-time payment methods though useful for certain use cases are not going to be … it’s not the silver bullet for a lot of the areas that we’re focused on to get pay by bank to have significant adoption in the US if you think about the next five or 10 years. But maybe at some point FedNow will support real-time debit poll. Maybe that’s like a 2030 conversation, but it’s not on the roadmap as far as we know.

Yvette Bohanan:

At least. Okay. So you’ve launched with several merchants. So before we wrap here, I just want to ask you, what advice are you going to give a merchant contemplating the addition of pay by bank? What should they expect in terms of consumer adoption? What should they expect in terms of how long it takes them to get wired up with you or any provider in this? You’re the only provider I’ve talked with here, so let’s just say you, but how long does it typically take for a merchant to get set up and what type of … And we talked a little bit about initial adoption in the high single digits. How long does it take to get that?

Eric Shoykhet:

Yeah, so from an integration standpoint it’s super seamless. You can integrate it into your platform within several days. We’ve had smaller merchants do it within a day. It’s built to the standard and familiarity from an API perspective, merchant portal perspective, backend transaction reconciliation perspective akin to other payment methods and payment providers.

So be super familiar to your enterprise payments team or whoever runs the integration processes with other payments providers. And the way our APIs are set up and formats and all of that is built to that same standard. So it’ll be super familiar. It’s like integrating if you were to go integrate with another kind of PSP or payment provider, it’s very similar integration. And so a lot of the work for the merchant is actually more on their backend, which we do help with.

And I would say we’ve had merchants that process call it $5 billion a year integrate within two weeks soup to nuts. So very fast integration, extremely lightweight. Our team does a really good job of helping if there’s any pain points.

And then look, from an adoption perspective, again, it depends on the type of merchant, but we would generally say 10% is a good number to think about about two months in, two to three months in. And that’s the number we target. We’d like to see merchants more in the, call it 12% to 14% range, especially if it’s more like a marketplace or again, there’s some amount of repeatability.

So yeah, generally that’s kind of an adoption level merchants can expect, assuming we work together and they do a good job with the UX and the CRM and all these levers. But the beauty of this is the merchant has a lot of levers to pull to drive adoption. It’s just starting with the UX and CRM components before they even get to offering or thinking about economics and nudging kind of folks who have bought from them previously. So a lot of levers for the merchants pull to drive adoption.

We’ve seen kind of great feedback from consumers on the seamless UX and it’s a lever that the merchant has and can pull to really reduce in a dramatic fashion their cost to payments and have meaningful savings that flow right to the bottom line.

So merchants are obviously excited about it and we think pay by bank is going to see a dramatic kind of acceleration adoption over the next five to 10 years and we think it’s going to take meaningful share from first from debit and then also from credit over time.

Yvette Bohanan:

Well Eric, thank you so much. This has been a pleasure. I love talking with people who are swimming upstream and tilting at a few windmills because I think that’s what we need in this industry more and more. And the competitive side of my personality is urging you on because I don’t want to be so far behind other countries that have adopted this and seen a lot of success in this space, so.

Eric Shoykhet:

A lot of these payment types and innovations in the US have actually just been more expensive forms of payment built on top of card rails. Well, that’s what they are. There’s another fee for that. PayPal, BNPL to a large extent, a lot of that backend payment volume actually shockingly does not happen on ACH. It’s actually on card rails. So these are all just forms of payment that are actually just more expensive and ultimately there’s no free lunch. The merchant and the consumer are bearing that burden.

So our view is this is actually the first time we are pushing a payment method that has a lower cost of payments in the US. And that’s something that’s sorely needed because we have the highest cost of payments across any of these other major markets. And this isn’t 1970. And that to some extent, not that this would’ve been relevant in 1970, but that’s to some extent why PayPal’s also losing share, which is people don’t need really the security of this wallet. This isn’t internet 1998. You’re buying from merchants you know in situations where in a lot of cases there’s not disputes, right? If you’re using your credit card or debit card buying from Starbucks or on Amazon or on Ticketmaster or on StubHub, these are known merchants who you buy from very regularly.

We’re not here to say that pay by bank is going to take share in all of these situations and from both credit and debit, but there’s actually a lot of payment volume that is on these rails that just doesn’t make sense where the merchant’s bearing 2.5% for what? It doesn’t … It’s just, it’s very disproportionate relative to the actual value that’s being provided, and given where interchange rates have gone, merchants are realizing this, and we kind of think we’ve hit a breaking point where there’s going to be a blowback and we expect there to be share shift away from credit and debit to pay by bank.

Yvette Bohanan:

Great thesis. I’m going to be watching from the sidelines to see how this all plays out for you. This is cool.

Eric Shoykhet:

Appreciate it.

Yvette Bohanan:

So thank you so much. It’s time to wrap. And I just want to say this topic is something that we encounter quite a bit at Glenbrook, choosing, figuring out cost of payments, figuring out what merchants need to do to lower their cost of payments, to improve their reach and to make things easier for consumers to buy from them.

If you have questions around this, please feel free to connect with us. We would love to talk with you. Eric, again, best of luck to you and your team at Link, and for all of you listening, thanks for joining us and until next time, keep up the good work. Bye for now.

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Payments on Fire is a production of Glenbrook Partners. Glenbrook is a leading global consulting and education firm to the payments industry. Learn more and connect with us by visiting our website at glenbrook.com.

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