Every few decades innovation makes a drastic lurch, leaving us wondering why it took so long to manifest something so beneficial. Radio to television. Typewriter to computer. And with the banking walls coming down in Europe, Rube Goldberg payment transfers to bank-to-bank deposits.
Building the credit card system as we now know it was no easy feat; Visa’s founder, Dee Hock, authored a book explaining his frustrations and ultimate triumph in building Visa. To make Visa run Dee solved the ultimate Prisoner’s Dilemma, and he was awarded handsomely for his efforts. But we would be remiss if we didn’t let Dee’s own words guide us to the logical sequitur for what he built:
Success follows those adept at preserving the substance of the past by clothing it in the forms of the future.
When Visa (and Mastercard) were erected, moving funds between parties was no Sunday picnic. It took years of painstaking negotiations, lobbying, and convincing to build the duopoly network power that Visa and Mastercard now enjoy. Yet times have changed drastically over the past 70 years, and moving funds does not warrant countless intermediaries nor complicated pricing schemes.
Think about it: what’s the simplest way to pay somebody? It’s moving funds from your account to theirs. So long as your financial institution talks to the counterpart’s financial institution, the validation and fund transfer can happen instantly and, in theory, entirely gratis. In fact if you asked your average 20-something how much they pay to move funds between peers on apps like Venmo, they’d tell you nothing. Asking them to pay for that right would ring as absurd as the idea of charging per email (which Bill Gates advocated on behalf of).
This is the same observation the founders of Vyne made after working for years in the payments space. Cofounded by payments executives from Worldpay, Mastercard, and Barclays, Vyne’s founders began toying with the idea for a new payments scheme in 2016, a year after the EU passed the open banking directive, PSD2.
“PSD2, what we colloquially call ‘Open Banking’, mandated that European banks create APIs so their tech stacks would be open to third parties to build innovation,” explains Damien Cahill, Vyne’s cofounder and COO. For example, imagine a mortgage company trying to assess the risk of a potential borrower. With PDS2, the mortgage company would query the bank API of the borrower to access income and expenditure information to get a sense of an applicant’s risk profile. It doesn’t take a genius to understand how this expedites value creation.
This mortgage example falls under a type of API correspondence that’s known under PSD2 as AIS, or account information services, and it became the first use case for Open Banking. “AIS started the ball rolling and is now up to 700M monthly transaction calls,” shares Damien. “Vyne takes advantage of Open Banking’s PIS, or payment initiation services, and it’s due to grow exponentially over the next year.”
Vyne envisions a way for merchants and consumers to pay directly with their bank accounts, obviating the need for expensive and costly middle men in the transaction settlement process. Even if you don’t understand payments intricacies, the below graphic makes it obvious that Vyne’s direct method of commerce is dramatically simpler than today’s funds transfer scheme involving a handful of third parties (which coincidentally all stick their hand in the payments cookie jar to grab a piece of the transaction).
Vyne is now a team of 20, with significant investment from Seedcamp, TriplePoint, Founder Collective, and Entree Capital, and an ever growing client base. “Vyne is very simply removing the need for the card in the payments process. 85% of transactions in the EU today already track directly back to a bank account, so why put merchants through the hassle and cost of waiting on cards to settle?”
Vyne’ value proposition to merchants is threefold.
First, Vyne reduces card costs. “Vyne allows merchants to move all payments acceptance to a very transparent and predictable flat fee per transaction.” Instead of paying 70-300 basis points to accept a transaction, Vyne offers the transaction at a single, simple lower price.
Second, Vyne settles instantly. “Because of all the middlemen involved, it usually takes 3-5 days for a card transaction to settle.” Vyne settles transactions in milliseconds as banks communicate instantaneously. This means merchants get their funds in near real time.
Lastly, because Vyne enables direct bank communication, the risk of fraud is dramatically reduced. “As each and every payment is authenticated through the persons own bank account or banking app, every transaction passes biometric scans – such as faceID or fingerprint – or bank-level security. making it extremely hard for fraudulent payments to succeed.”
Vyne intends to scale by enrolling larger ecommerce merchants and embedding the pay with Vyne button or whitelabbeled payment journey in the checkout process. When the consumer chooses this option, Vyne redirects the user to their bank and the bank sends a biometric confirmation alert to the user’s mobile banking application. Once verified funds transfer in milliseconds.
As with all gold rushes, Vyne is not the only player going after this space. Yet due to the regulatory approval requirements – which average 42 weeks – Daimien tells us that most startups intend to go after the plumbing and not the end user experience.
How fast could Vyne grow? Well, monthly PIS is currently at 150K monthly transactions, but that’s doubled over the past quarter. Vyne’s cofounders predict that once the right payments products are available PIS will follow AIS and in 2021 grow exponentially from where it is today. “By the second half of 2021 we’re betting that the PIS market will explode, and we’ll be ready to follow our EU momentum to Asia Pacific and Latin America as they roll out their Open Banking initiatives.”
If you’re wondering where the US is in all this, the Federal Reserve has slated their Open Banking initiatives for 2023. Of course Open Banking is regulation that wouldn’t exist if it weren’t so burdensome to become a bank, as open APIs would have already existed. But don’t let that take away from what Vyne is working to accomplish.
At a minimum it should become clear that there is a very real expiration date for paying 3% to accept cards. Or Visa and Mastercard could acquire all innovation to keep their place in the echelon of the status quo. Dee Hock would likely not be too proud of that outcome.
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