The London fintech darling GoCardless is eyeing the new wave of payments regulation across Europe and the UK as an opportunity to boost the usage of bank-to-bank payment methods.
GoCardless specialises in allowing businesses to take recurring online payments like direct debits and counts 35,000 customers responsible for collecting around £5 billion a year.
Speaking at the Innovate Finance Global Summit in London in March, CEO Hiroki Takeuchi spoke about the opportunity open banking and the Second Payment Services Directive (PSD2) provides his company, namely in opening up the use of the Faster Payment rails for merchants.
"So instead of having to go into your bank and push individual transactions out through online banking, there will be ways of authenticating payments from within a merchant's environment to authorise that payment immediately, rather than in two to four days," he explained.
The young CEO sees the new wave of regulation as dramatically moving the needle for payments systems. As they currently stand debit and credit card transactions far outweigh bank-to-bank transactions like direct debits.
Takeuchi pointed to the iDEAL payments system in the Netherlands - which allows customers to buy goods on the internet using direct online transfers from their bank account - as setting a precedent for an uptick in bank-to-bank payments in the open banking world.
"So there is precedent for this and what I'm really excited to see is as we solve these problems of PSD2 and open banking how is that going to impact the digital payments landscape? We really believe it will give rise to bank-to-bank as a really popular mechanism of payment," Takeuchi added.
For that to happen three fundamental challenges need to be met, according to Takeuchi:
"The first is these systems, which are all based around direct debit, are themselves quite old systems and a batched mechanism that takes two to four days to verify a transaction," he said. "In a world where we want to be able to ship goods the same day we take an order that's not going to work.
"The other problem is that taking money from someone's bank account and there is no strong authentication process in place for establishing ownership of a bank account that means there are very strong guarantees embedded into that system to protect consumers. That's obviously very important when it comes to high-risk transactions and particularly when you are transacting online that becomes a real problem.
"Finally, each banking system has its own version of these direct debit mechanisms so as a company with a global footprint collecting money in this way requires integrating across five, ten, fifteen banking systems, and that becomes really untenable."
The other advantage of open banking is it gives consumers the ability to log into their online banking in a more seamless way and in a greater variety of settings. "We will be able to authenticate transactions and make them much safer and reduce those risks that are inherent with bank-to-bank systems up until now," Takeuchi said.
So why should businesses care?
"We think of bank-to-bank as a fundamentally more efficient way of taking payment," Takeuchi said. "It is a way that uses the existing rails of the banking system, you don't have all of these intermediaries for each transaction.
"In concrete terms that means you can transact much cheaper and more reliably without relying on a plastic card that can expire or be lost."
Where GoCardless comes in is by placing itself as a platform that allows customers to access all of these 'superior' payments systems without having to integrate with each one separately, facilitating more direct payment methods across various geographies.
"The challenges we still see is this is happening at an individual bank system level," Takeuchi said. "PSD2 effects the eurozone and open banking the UK, but this doesn't do anything to change the fact that bank-to-bank systems are going to be fragmented geographically.
"That really is where we are focused as a company. We see our role to build this global network on top of these bank-to-bank payment systems and make it much easier to operate these systems across the world."
GoCardless is currently live across the UK and Europe and is planning on expanding to between 10 and 15 geographies in the next two years. The company has raised nearly £50 million in funding from the likes of Passion Capital and Balderton Capital since being founded in 2011 by Takeuchi, Matt Robinson - now of proptech startup Nested - and Tom Blomfield, who is now with Monzo Bank.