Fintech startup Payrailz is positioning itself firmly in the "invisible" payments market that's taking shape in the e-commerce and mobile app business. Only in Payrailz's case, it's making a direct appeal to smaller banks that may have the greatest need to update their tech.
"It's time to move out of the dark ages," said Fran Duggan, the CEO and founder of Payrailz, contending the major bank technology vendors and merchant acquirers benefit from the status quo. "But the big financial technology providers aren't motivated."
Payrailz plans to sell financial technology directly to banks on a software-as-a-service basis with fees based on usage. It's offering a range of functions such as bill payment, account transfers and P-to-P payments at the start, with more services to come later. Its model relies on a bank or credit union's CRM system, or customer data to drive automated transactions, using artificial intelligence to improve personalization and execution over time.
"AI is available for smaller banks or community banks. However, because of cost and available resources proprietary AI will be less available for them than the larger banks," said Brad Margol, principal at AZ Payments Group. "Things like chatbots for customer service can be more cost-effective than filling a call center."
Operating like a digital assistant, Payrailz will present a consumer with a bill or a payment request through the bank's app. For example, a user could be told there's a total of $1,200 due over three monthly bills, but there isn't enough money in the checking account. Payrailz will perform the transfer and pay the bills as prompted by the consumer.
"You work hard all week and on Friday night you don't want to go through a stack of bills and do bill payments," said Duggan, who has worked for Webster Bank, Innovera and Payveris. "Why can't this information be made available through the bank, along with the ability to make the payment or move funds to make the payment?"
Banks already know who the consumer is paying, but risk losing ground to technology companies such as PayPal's Venmo, which offers a straightforward, socially-driven payments experience, Duggan said. Additionally, "gig economy" apps such as Uber offer a slick experience in which they payment is in the background and requires little effort from the user. That experience itself won't hurt banks, but it creates an expectation of easy execution that most banks still don't offer.
"We want banks to take back their own turf in payments," Duggan said.
There are also AI-driven bank alternatives, such as Clarity Money, that organize a consumer's recurring expenses to make recurring payments easier. Fintechs will gain additional access to more bank data due to the trend toward open banking spurred by PSD2 and other regulations.
Banks are responding in part by taking advantage of scale. The bank-led Zelle transfer app covers more than half of the online banking market.
But the banking industry also pushes back against the fintech encroachment by contending technology alternatives have an easier time offering introductory account transfer, credit and payment services because the startups are not regulated as heavily as traditional banks. The availability of AI and account data makes it possible for banks to reclaim an advantage despite that regulatory gap, Duggan said.
"There are a lot of convenient excuses out there. We're fully regulated and have all of the security that you would expect from bank," Duggan said.