Pay by Bank: The Secret Behind Merchant Loyalty and CLV

Insights from our masterclass with Craig McDonald, Chief Business Officer of Enterprise at Trustly, Inc.

Merchants are constantly seeking ways to improve revenue capture at their businesses. Payments pros, marketing and loyalty pros, and finance pros could be overlooking an area of their business where they can enhance customer loyalty and generate higher customer lifetime value: their payment acceptance.

Pay by Bank offers a compelling alternative to traditional card payments that delivers on both fronts. This blog post will explore how this innovative payment method is transforming merchant economics and customer relationships.

The Cost Advantage: Half the Price of Traditional Debit

When examining payment options, merchants must consider both debit and credit cards, each with different cost structures and demographic appeal. Pay by Bank brings something revolutionary to the table: a guaranteed payment method that costs approximately 50% less than traditional debit card transactions.

This cost reduction is possible because Pay by Bank operates on a streamlined two-party model—just Trustly and the merchant—eliminating the need for acquirers, networks, and issuer processors that add complexity and cost to card transactions.

Boosting Approval Rates Through Secure Authentication

Beyond cost savings, Pay by Bank delivers superior approval rates compared to both debit and credit cards. This advantage stems from Trustly's secure customer authentication (SCA) process, where consumers directly authenticate with their bank.

Unlike the five-party card payment model—where each participant runs independent risk algorithms that can lead to false declines—Trustly's streamlined approach virtually eliminates credential fraud and third-party fraud. When a customer authenticates through their bank, Trustly can match personal identifiable information (PII) from both the merchant and the bank, resulting in cleaner, more secure transactions.

Transforming Savings into Enhanced Customer Loyalty

The most exciting aspect of Pay by Bank isn't just the cost savings—it's what merchants can do with those savings. Most major retailers already operate loyalty programs to drive customer frequency and retention. With Pay by Bank's reduced costs, merchants can reinvest half of their savings into enhanced loyalty benefits, such as doubling rewards points for customers who pay this way.

This approach mirrors the success of programs like Target's Circle Card, which offers an everyday 5% discount when customers use their Circle Card. The result? Customers who might have previously allocated 30% of their shopping visits to Target might increase that to 40% or more—a significant boost in revenue and customer lifetime value (CLV).

And the best part is: it’s not just a theory. Target has proven this to be an effective payment strategy–creating some independence from the high costs of credit cards.

The Data Advantage: Personalized Customer Engagement

When consumers connect their bank accounts to Pay by Bank, they grant permission for Trustly to access valuable transaction data. This provides merchants with unprecedented consumer insights:

• Demographic information
• Income data
• Detailed spending patterns
• Shopping frequency at competitors
• Consumer affordability

With these insights, marketing teams can create personalized incentives tailored to individual shopping behaviors. For example, if data shows a customer regularly shops at a competitor, the merchant can design targeted offers to shift that spending to their brand.

The CLV Impact: Double-Digit Growth

The business case for Pay by Bank becomes crystal clear when examining its impact on customer lifetime value. According to our research, merchants implementing Pay by Bank with enhanced loyalty benefits don't just see marginal improvements—they experience double-digit increases in CLV.

This success formula works across various industries. Take telecommunications: companies like Verizon can offer monthly bill discounts to subscribers who use Pay by Bank, creating an incentive that outweighs credit card rewards for many customers.

Consumer Data Security: A Top Priority

While the data insights are powerful, consumer security remains paramount. Trustly's split token technology provides robust protection by never storing online banking usernames or passwords. Instead, credentials are encrypted, split bit by bit, with half retained by Trustly and half federated to the merchant. This means that even in the event of a security breach on either side, the compromised data would be meaningless to attackers.

This approach stands in contrast to competitors who store banking credentials in their systems. Combined with SOC 1 and SOC 2 compliance and other enterprise-grade safeguards, Trustly offers security that merchants and consumers can trust.

"There's an extra layer of security when I go through my bank and Trustly. I know I can trust it. Trust is in the name!" - Brittannee, 35 yrs old, Indiana

The Bottom Line for Merchants

Pay by Bank delivers a powerful combination of benefits that directly impact a merchant's bottom line:

1. Cost savings: Half the cost of traditional debit transactions
2. Higher approval rates: Fewer false declines mean more completed sales
3. Enhanced loyalty: Ability to fund 2x rewards points to drive customer retention
4. Customer insights: Rich data for personalized marketing and engagement
5. Fraud reduction: Virtually eliminates credential and third-party fraud

For consumers who already pay with debit cards, switching to Pay by Bank is a no-brainer—same account funding with double the rewards. Even credit card users may find the enhanced loyalty benefits more valuable than airline miles or other traditional credit card perks.

As merchants continue to compete for wallet share and customer loyalty, Pay by Bank offers a compelling solution that aligns payment efficiency with long-term customer value. The result is a win-win proposition that's changing how smart merchants think about their payments strategy.

Ready to learn how Pay by Bank can transform your payment economics and customer loyalty? Let's connect and talk about it today!