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How Pay-by-Bank Solutions Will Change the US Payments Market with Eric Shoykhet of Link Money

Do the high fees and security risks associated with credit and debit cards bother you? In this episode of PayPod, host Jacob Hollabaugh sits down with Eric Shoykhet of Link Money to discuss how pay by bank works and why it’s the future of digital payments. Link Money is revolutionizing payments in the United States with the first Pay by Bank solution focused exclusively on the US market. Watch this episode for a fun and interesting dive into this latest development in payments and fintech.

Payments & Fintech Insights In This Episode

  • Pay by Bank in the United States is a more secure and cheaper payment method compared to cards.
  • Link Money focuses on areas where there’s a good amount of repetition of purchase behavior.
  • The growth curve of Pay by Bank in the US could be similar to BNPL, which went from zero to five-six points of payment volume in several years.
  • The security of pay by bank is as secure as logging into your bank account.
  • Eric talks about capping credit interchange in the US
  • And SO much more!

Today’s Guest

Eric Shoykhet : Link Money

Link Money is revolutionizing payments in the United States with the first Pay by Bank solution focused exclusively on the US market. Their solution harnesses the power of open banking to offer merchants an alternative payment option that is both low-cost and convenient for customers who want to pay using their bank accounts. Link Money makes Pay by Bank as easy as using a credit or debit card while saving merchants up to 70% in payment processing fees. Plus, their proprietary machine-learning process allows us to cover certain return codes and cut down on fraud. Using Link Money is a win-win for merchants and customers.

Featured on the Show

About PayPod

PayPod is the leading voice in the payments and fintech industry, covering payments, risk management and new technology. Host Jacob Hollabaugh interviews leaders who are shaping the payments and fintech world, as they discuss the latest developments in the payments and fintech industry.

Episode Transcript

Jacob: Welcome to PayPod, the Payments Industry podcast. Each week, we’ll bring you in-depth conversations with leaders who are shaping the payments and fintech world from payment processing to risk management and from new technology to entirely new payment types. If you want to know what’s happening in the world of fintech and payments, you’re in the right place. Hello, everyone. Welcome to PayPod. I’m your host, Jacob Hollabaugh. And today on the show, we are going to dive into the concept of open banking and the power and potential changes pay by bank products are bringing to the financial and payments world. Join me to discuss these topics is Eric Shoykhet, co-founder of Link Money, a company revolutionizing payments in the US with the first pay by bank solution focused exclusively on this market. Eric, welcome to the show. Thank you so much for being here.

Eric: Thanks for having me.

Jacob: Absolutely. I want to kick things off by having you explain the concept of open banking. It’s maybe a newer term to a lot of listeners or even players in the financial and payments world. So can you break down what open banking is and how it relates to payments?

Eric: Sure. So open banking is the ability for third parties to connect with bank account information and data that varies by market. So there are certain markets take Europe, for example, where open banking access is actually legislated. You have markets like Brazil and India and Europe as well, where they’re very closely tied into the actual payments infrastructure. And there’s really centralized regulation around access to that data and information for the purpose of facilitating payments outside of a card network. In the United States. It’s not legislated, but there is now, generally speaking, somewhat standardized access via API to bank account information and data that you can pull in if you’re a third party and that can be used again for credit decisioning, it can be used for personal financial management use cases like display of the information, and it can also be used for the purpose of facilitating payments. Now in the United States, the payment component is separate from the bank account data and information, whereas in some other markets it’s directly tied in take, like in India or in Brazil as well as Europe, where there’s actual real time payments. So that varies by market, but fundamentally it’s about access to bank account information and data.

Jacob: And is the difference between what the US is doing in the EU and all the other places is that essentially come back to just when we started to go digital with anything, the choices that were made then, or was there a specific reasoning behind why we’ve done things a little different or the lack of legislation here in the US versus in the EU?

Eric: No, I think it’s just typical of the United States and how payments is fragmented here. And obviously there’s a lot of things where the government does regulate but doesn’t necessarily force innovation or force companies to do things. So the access to bank account information and data in the United States has been born out of a necessity by the banks because prior to this, companies were screen scraping. This data, which is far less secure, has a bunch of security implications. And the data as a result of this is often of lower quality. So the banks themselves, from a security and quality perspective, decided to open APIs to enable access to this information and data, whereas in other markets the government forced it. But the reality is that access is now here in the United States. The bigger issue has been historically the lack of real time account to account payments, which FedNow will partially somewhat solve. But that’s really the second piece tied to this.

Jacob: Yeah. And I do want to a little bit later come back to FedNow and the kind of combination of the real time payments and just speed and how that plays into this world. One quick little tangent. First, I kind of mentioned the digital age and I was just curious, do you think this is happening because of the whole digitization of everything in the finance and banking world? Kind of open up the ability to do all of this? Do you think there was any chance that some sort of open banking concept could have been possible prior to the digital age?

Eric: Define, I guess the digital age as of when

Jacob: Pre-internet old school finance? Like would there have been any way for any of this to have ever happen before? We were all doing everything on our devices.

Eric: No, because you really need to pull in this information on a kind of constant real time basis. And there’s really no analog way to do that. Digital bank account information and access and the ability to pull that in consistently in a real time basis is what is necessary to basically enable open banking and also obviously to use that information in real time for whether it’s for personal financial management or credit decisioning or money movement.

Jacob: Yeah, the other kind of status quote question is, is you referenced the banks multiple times. And I’m wondering, do the banks want this to happen or are they okay with the status quote from the bank’s perspective? What are their thoughts and opinions on these types of changes?

Eric: It really depends by bank. I mean, you know, in the United States, you have like 8, 10,000 banks and credit unions. So it will really vary. And it also depends on the use case in general. The large banks have clearly demonstrated at this point that they would much rather have control over access and information and standardize it and make sure the access is secure. Care and customers can revoke access if they want and things like that. So I think from that standpoint, it’s far superior to screen scraping, which is what was happening before and for lack of a better term, I think we’ve crossed the Rubicon in that sense. The standardized access via API is now the reality and will continue I think, for the foreseeable future. Makes sense. The use of that information for specific use cases and how that makes the banks feel depends on the position of the bank. So if it’s payments, some banks may not love that. If they have large interchange revenue from cards, that’s only a couple of banks that really do that have big card issuing businesses for the other banks. They may not care as much because they don’t really make that much in interchange and they’re more kind of on the lending side. And they may actually like that because they get paid obviously for this information and access.

Jacob: Yeah. Let’s move to your company that you co-founded then Link Money. Can you give me the quick rundown of who Link Money is when it came about and the services you’re offering today.

Eric: Yeah the company was started from the perspective of enabling pay by bank in the United States. That’s a trend we’ve seen in other markets. If you take a look at Europe, pay by bank has grown very rapidly from basically nothing to 18% of digital payments over call it 5 to 7 years, and it’s taken share from cards. And the reason for that is pay by bank is a more secure and cheaper payment method. Security from the perspective of when you use it as a customer, you’re actually logging into your bank account. So it’s literally has the same security standard as if you were logging into your bank account. And then from a cost perspective, obviously it operates outside of the credit card and debit card networks. And so there’s a lower cost of account to account payments. So that obviously has a significant benefit to the merchant. And then there’s some other ancillary benefits around fraud reduction for the merchant and friendly fraud and things like that. So that’s why it’s taken so much share in markets like Europe and India and Brazil. And the thesis of link money was and is that pay by bank should exist in the United States and the market timing and opportunity for it to happen is extremely compelling.

Eric: It’s the largest digital commerce market. It also has the highest interchange fees and merchant processing costs and also the highest amount of friendly fraud and actual fraud. So from an economics perspective, it’s actually the best market for this to take share. The reason it hasn’t happened historically is it wasn’t really possible from a technological and infrastructure perspective to pull in the account information access and then ultimately figure out how to tie that to money movement. So that’s what we’ve done. We’ve built an infrastructure layer where it’s super easy for the merchant. It functions just like a card for them in their checkout flow. They know the funds are money good and they can ship the goods or issue the, you know, the ticket or whatever the digital good is and they save 70 or 80%. So it’s extremely compelling. From a merchant perspective, it’s easy to use and more secure from a consumer perspective. And the economics make it such that you know, we think this will take share over time in the United States.

Jacob: I’ve got a bunch of follow ups I want to ask about that. I’m impressed by the amount of share it’s taken in the UK. Before I come back to that, what industries maybe in the UK or other parts of the world and then maybe what you would expect with Link, what industries have been the early adopters that this type of solution makes the most sense for?

Eric: Yeah, it’s a great question. Our focus is on areas where there’s a good amount of repetition of purchase behavior. So a known customer or known merchant customer is buying from that merchant regularly or it’s a subscription. Things like that. And where the merchant can somewhat have leverage in terms of driving adoption. So some of the segments we focus on are kind of high repeat e-commerce, SaaS, subscriptions, ticketing marketplaces, parking storage units, insurance. So areas where, again, there’s a good amount of dollars, the transaction amount is decently large and there’s repetition and the merchant has some say and leverage over what payment method customers can use. So those are the areas we tend to focus on.

Jacob: Yeah. And so you referenced the number, the kind of adoption numbers in overseas. What are maybe some goals or ideas around how quickly or what size you think the adoption rate could be here in the States?

Eric: I think BNPL is a good example of what a growth curve might look like. That’s something that went from zero basically to five six points of payment volume in the US in a matter of call it several years, four years, maybe five years, maybe a little more. So I think the growth curve could be similar. I’d say that’s like a good kind of interim target. And then over time, high single digits at some point, maybe low double digits is not inconceivable over the next 5 to 7 years.

Jacob: Yeah, which would definitely be great for you. And it makes sense to me too, with some of the industries you mentioned, they all to me sounded like with subscriptions and different things. I also, in my head, without knowing for sure, was like I would think the US would be the biggest market for those types of payments and those types of products and services and everything too. So just back to your point of this is, you know, the biggest market size that you can go into now that there’s the avenue to go into, it definitely can have a massive impact. Walk me through, if you could, the customer journey. If a merchant wanted to work with you, decides to work with you, what would are the steps, the timeline to be up and running and being able to offer this to their customers?

Eric: It’s pretty quick. It’ll depend on the merchant’s capabilities and infrastructure, but the pure integration on the front end for basically putting us into a checkout flow for an enterprise merchant is a matter of a week or two of work of call it a sprint or two with maybe 1 to 2 engineers. So it’s pretty modest. We’ve had smaller companies do this, the integration in less than two days. So it’s very easy. It’s built in the same manner as existing payment methods. So it’ll be very familiar to the the engineering and product teams that have implemented payment processes previously. And it’s more about the work that the merchant may have to do on the back end to make sure that this payment method reconciles with their billing systems and reporting and things like that. But we also have a lot of help and effort that we’ve put in to ensure that that also is as smooth as possible for the merchant.

Jacob: Yeah, love that. And you referenced the security portion of it before being a benefit on all sides of it for Link and really open banking in general. Is it as simple as you’re literally logging into your bank account? And that’s the they have the best security within the payments and financial world. So no one’s going to have any pushback if that’s the layer of security or is there anything with the approach to security fraud prevention that changes with there being less layers of players within that payments chain using this method?

Eric: Yeah. So the security is literally logging into your bank account. These are OAuth connections. We don’t store credentials or touch anything, so it’s literally you log into your bank account with the security method that you may use. And for the larger banks, that authentication, if you have their mobile app, might be with face ID or biometrics. So it’s as secure as it gets. You don’t need to pass an account or routing numbers or login credentials. And then ultimately we leverage the bank account data to make sure you have enough money and then tell the merchant that the transaction is approved and then move the money ultimately on the back end.

Jacob: Yeah. And certainly from the consumer side, if there really can’t be any pushback, if you’re like if you don’t trust your banks, the actual bank itself for their security, then I guess you don’t trust any single part of the financial or payments world. So we don’t see any real pushback there. Let’s turn our attention then to kind of some industry news and trends. And I want to start with the Credit Card Competition Act, which has been reintroduced in Congress. This time there’s a little bit more bipartisan support than the previous the first time it ever came about. Are you able to tell us at all like a quick overview of what that act is or is trying to do and how, if passed, you maybe see that affecting the payments landscape or what link is trying to do with pay by bank.

Eric: Yeah. So there’s a lot of push by merchants to try to cap credit card interchange. The Durbin Amendment caps debit interchange in the United States for banks above a $10 billion asset cap. So there’s been a desire to cap credit interchange in the United States. I haven’t reviewed all the dynamics of how this plays out in Congress, but I think the consensus is that it’s highly unlikely that this will get through. I think it’s been something that’s been tossed around for a. While so color me skeptical. We shall see. And I don’t think it’s something that’s probably going to happen in the near term. But ultimately, even if they do cap it, it’s likely to be similar to debit where certain banks that there is a cap there certain that aren’t. And ultimately the reality is that the market will have to come to terms with the elevated credit interchange rates through alternative and cheaper payment methods rather than a government solution. But we shall see.

Jacob: Even if they were to cap it, it doesn’t take the benefit away from what you’re trying to do or what the pay by bank concept of we’re still removing it, whether we capped it and you got a half a percent back, but we’re still removing the whole thing with what you’re doing. So the benefit is still there.

Eric: Yeah, they’re still going to be a large gap regardless. And I think if you look at Europe, Europe’s a market where these things are capped and the total cost is much, much lower and pay by bank is still taking dramatic share.

Jacob: Yeah, certainly. And then to a topic you referenced earlier, then real time payments here in the States. It’s been one of the most reoccurring topics on this podcast throughout this whole year really, and has been one of the big charging topics and especially with the expected launch of FedNow in the coming months, which you referenced earlier. Any overall thoughts on like RTP where speed of transactions are heading and how that intersects and impacts the open banking concept.

Eric: From a payments perspective In real time payments standpoint, there’s already something called RTP, obviously in the United States. FedNow will be obviously available at some point in theory for all banks in theory and mandated by the government. The big issue with both RTP and FedNow, which is the same actually is that both our credit push, not debit pull. And so what that means is that a consumer must authenticate and authorize each transaction. And then of course, it happens in real time, which is great. So from our perspective and for a lot of merchant use cases, the merchants want this to function like card on file. So there’s a safe payment method with the person’s bank account and that when they come back and are shopping for the fifth time or 10th time or whatever it is, whether it’s month two of a subscription, the merchant can just ping the provider like link money, ping our API and say, Hey, this is the customer ID, this is the saved payment information that you guys have that’s associated with the customer ID. Can you charge this method, this amount of money? Is it approved or not? And then you say yes or no. You don’t want the customer to have to reauthenticate and have that friction point at that moment. Certainly not if it’s a repeat payment on autopay. Right? You want to be reminding that person every month that they’re paying you, that could cause churn. So the reality is for large purchases that are more one off in nature, yes, RTP and FedNow can be useful. So that’s great. But for a lot of money movement for you know, you think about like card like use cases where you have card on file, it’s actually not suited Well, it would be great, of course, if we had real time debit pull that was associated with FedNow, but that is not on the roadmap at all. And so the reality looks like FedNow will be used for larger amounts in real time. And then ultimately ACH is still going to be kind of the big game in town for debit pull.

Jacob: Interesting. And so you said it’s not like on their roadmap, have they come out and said that or is it just not a part of this initial rollout?

Eric: They’ve said and indicated that it’s not on the roadmap as of now. So that doesn’t mean that it can’t be in a few years. But for now it’s not.

Jacob: Yeah. And would you expect the best path to that ever happening would be an RTP or FedNow incorporating it into them? Or would it be another brand new service being the quicker path to creating? No, I.

Eric: Think it would just be yeah. FedNow adding real time debit poll. That would be great and that would be something that I think would drive a lot of value. But we shall see. I mean, FedNow has taken we don’t even know exactly the specifics and we’ll see if it actually works and who supports it when it launches. And this has been something that’s been a long, long time coming. So it could be 20, 30 before you see real time debit poll. Let’s put it this way.

Jacob: Well, let’s hope sooner than that. And yeah, there’s a reason I said in the coming months expected launch because even some folks who we’ve talked to recently on the podcast that are participating in the launch are either not necessarily allowed to say, but also don’t know what to say as far as. Yeah, it’s expected to come in the next few months and that’s the best answer we have. So we shall see what they come out with. Final question for you then, Eric, What does just kind of looking out at the next half decade or so for LinK and for pay by bank in general? What does that next half decade look like? Any major trends that are going to dictate what you or the industry do, any inflection or turning points you’re looking for to indicate where things might be headed?

Eric: I think you have to see adoption in the United States and how that plays out early and some of these verticals that the merchants can be more aggressive about adoption. I think RTP will help in certain use cases where it’s larger amounts and more one off in nature. So that’s definitely going to help. Having real time payments at all account to account in the United States is a big step change. But I think what we’ve seen in other markets, you know, I mentioned again Europe, India, Brazil is very dramatic adoption of account to account payments. So I think over time it’s inevitable this will happen in the US. Yes, people will say, Oh, people love their credit cards in the US and rewards and all these things, but debit is actually taking share from credit in the US and is responsible for around 30% of e-commerce volumes. So I think the reality is there’s a lot of pie between debit and credit to kind of take share from over time and a cheaper account to account payment method that’s 60, 70, 80% lower cost than cards is very appealing to merchants, especially as growth has slowed in some of these verticals. So I think it’s inevitable. I think the exact nature of the growth trajectory, we shall see. And I think it’s key that you have quality providers, hopefully like like us at link money that offer the service in an easy to way, easy to use way for the merchant that’s similar to their existing experience with other payment methods like cards.

Jacob: Certainly, and I’m sure any consumers that are pushing back because they would get less reward points on their credit card are going to easily be overcome when realizing all of the many benefits that, at least from my perspective and from everything you’ve shared with us here, greatly outweigh those credit card points that you might pass up by going a different route. So, Eric, this has been really great to learn from you. For those listening who might want to follow you or Link and keep up with what you’ve got going on, where would be the best place for them to go to do so.

Eric: They can go to our website at Link.Money.

Jacob: Okay, wonderful. We will link to that and much more in the show notes below. Eric, thank you for giving us your time and knowledge. It’s been a real pleasure. Hope to speak with you again sometime soon.

Eric: Awesome. Thanks for having me.

Jacob: If you enjoyed this episode and want to hear more, head on over to sorbet.com/podcast to subscribe on your podcast listening platform of choice. That’s s o a r p a y.com/podcast.