The Executive Interview Series provides readers with exclusive insights from movers and shakers in the payments industry. The Payments Industry is under continuous transformation, as such this series provides diverse perspectives on everything from strategy to payments technology and to the future of the industry.
In this interview, TSG Marketing team member Rachel Hartley sat down with Eric Shoykhet, CEO & Co-Founder of Link Financial Technologies, to discuss the relationship between Open Banking and ‘Pay by Bank,’ growth in the U.S., and the secure benefits of using a ‘Pay by Bank’ solution.
Eric Shoykhet is the CEO and Co-Founder of Link Financial Technologies, also known as Link Money. Previously an investor at Governors Lane, an event-driven hedge fund, Shoykhet transitioned to Fintech, founding his first company, Atom Finance, in 2018. After getting an exclusive look into the Open Banking space in Europe, he chased the opportunity to build a company in the U.S. market that offers seamless payment processing through ‘Pay by Bank’ solutions.
Q: Rachel H.
What was the inspiration behind turning away from the hedge fund space and diving into Link Money?
A: Eric S.
When I left the hedge fund space, it was initially to start a company called Atom Finance, the first company I founded. It is an investment data platform that provides a better investment research and market monitoring experience. That’s a space I knew well from working in the hedge fund industry. There was a compelling opportunity to build a better investment research platform, serving the more sophisticated prosumer audience. The business eventually became more of a B2B data aggregation and insight layer that provides advanced data and research insights for other kinds of brokers and investment research and market monitoring tools.
While working at my hedge fund, I followed the Open Banking space in Europe. I saw the evolution of ‘Pay by Bank’. I felt that given what was happening in Europe and given what’s happening with account payments and other markets like India and Brazil, there was a timely and compelling opportunity to build a company around offering ‘Pay by Bank’ to enterprise-grade merchants in the U.S. and help them reduce the cost of payment processing and save money securely and efficiently for consumers.
Q: Rachel H.
Tell us about the unique experience Link Money provides its merchants.
A: Eric S.
Link Money offers enterprise merchants a ‘Pay by Bank’ solution in the U.S. In a matter of days, they can integrate our payment method into their digital checkout flow. In return, offer that to consumers as an alternative payment method for credit and debit cards. By doing that, they can advocate a significantly cheaper approach than cards. Generally, cards cost anywhere from 2.5% to 3%, and our solution is in the 1% to 1.5% percent range. So, we offer merchants very significant savings relative to the cost of payment processing. That helps them improve their margins and their business. We do that in a way where the consumer experience is highly secure and easy. It’s simply a button in the digital checkout flow. We take care of everything else – verify funds and move the money, ultimately, to the merchant. It’s a seamless and easy payment method for merchants to implement.
Q: Rachel H.
What is the relationship between Open Banking and ‘Pay by Bank’?
A: Eric S.
Open Banking is a term that explains account information and access. The term initially came from markets like Europe, with legislation around Open Banking and account information access. However, that doesn’t exist in the U.S. There’s no official Open Banking legislation in the U.S. What Open Banking generally refers to in the U.S. is the ability to access people’s bank account information and data. So, while there is no legislation around open banking, access to people’s account information and data has improved over recent years. It’s at a point where it’s sufficient for companies like us to leverage that data and information. Then ultimately, to make payment decisions and move money. It’s a better-off data infrastructure if you need to make ‘Pay by Bank’ a viable payment method and solution for merchants.
Q: Rachel H.
Why have payment processing costs continued to rise in the U.S.?
A: Eric S.
Fundamentally, the incentives of different U.S. players in payments are not aligned with reducing the cost of payment processing. The history of fees and interchange in the U.S. is that they’ve increased consistently over time. Because of that, and those incentives, you continue to see higher and higher payment processing costs for merchants in the U.S.
The PSPs and other providers set these interchange rates. The banks, who are card issuers, are incentivized to have higher payment processing costs because they get a piece of that interchange. So they make more money, and the payment processing costs are higher. Then the last piece is the PSPs and other folks who enable the actual payment methods, the technology, and the actual processing for the merchant. Those companies also take a small fee, you know, some number of basis points on each transaction. It’s the same incentive where they benefit if there is a higher cost of payment processing. So, everyone in this value chain fundamentally benefits from our higher processing costs to the detriment of the merchant and, ultimately, the consumer. So that’s why you’ve seen this be a consistent issue in the U.S.
Q: Rachel H.
How do merchants and consumers ensure security with ‘Pay by Bank’ solutions?
A: Eric S.
‘Pay by Bank’ is the most secure payment method because when you go to a website and want to use a credit or debit card, you have to input your card info; you’re giving your card info to the merchant. There can be issues where companies get hacked depending on how they’re secured. With ‘Pay by Bank’ and our solution via Link Money, you’re in the flow where you do the initial account linking. Which has to be done just the first time you log into your bank in that process. So, it’s as secure as the authentication that your bank offers. No one in the value chain or the merchant ever touches or sees any user credentials and information, so it’s as if you log into your bank; it’s the most secure payment type, and there’s no exchange of account info or routing numbers or anything.
Q: Rachel H.
Why has Open Banking / ‘Pay by Bank’ seen slow adoption in the U.S. vs. other markets?
A: Eric S.
Until recently, the U.S. was not a place where you could offer or build a ‘Pay by Bank’ product that worked well. You did not have sufficient information access to people’s bank accounts to move money and make the right decisions. However, the technology and infrastructure impediment with this kind of problem has improved over recent years.
Also, due to more of a merchant psychology and economic setup where merchants have the view in the U.S. that they should offer every payment method possible and give consumers the most choice. That mentality was in transition as the cost of payment processing has risen so much. Now they’re at an acute pain point where you have a macroeconomic weakness. The cost of processing is exceptionally high. Now, they’re much more focused on optimizing and reducing the cost of payment processing, instead of just offering every payment method under the sun. So, it’s the combination of previously not having the right technology, infrastructure, and Open Banking access to enable this, and two, having a different merchant perspective on how they should approach the payments in their checkout flow. Now you have the correct information and access layer to enable the product, plus a desire by merchants to lower the cost, it’s become very timely.
Q: Rachel H.
Your past experiences have heavily emphasized investing; in your opinion, what makes the fintech space a valuable investment?
A: Eric S.
Fintech is a broad term. I think it depends on what sort of commerce and how close to the core infrastructure you are. So, the further away you are from the core infrastructure, often the worse the business and the more competitive it is. On the other hand, the closer you are, the better the investment. For us, we are enabling a new and cheaper payment method for the U.S., which creates a lot of value. And we are kind of at the core infrastructure layer because we are a payment method.
So, I think that positions us well from the perspective of creating value as a business. Still, I think from the general content perspective, what ultimately matters is the exact activity you’re enabling. Like, how valuable is what you’re doing? And then the second part of that is, you know, how close you are to the core infrastructure? So how much of that value can you capture?