Talking with Johan Tjärnberg, Group CEO of Trustly: Breaking barriers

In the payments industry, open banking and account-to-account payments have experienced slower adoption in certain markets as they compete with card-based and peer-to-peer systems. In this episode of Talking Banking Matters, McKinsey payments sector leader Roshan Varadarajan speaks with Johan Tjärnberg, the Group CEO of the open-banking and account-to-account company Trustly. The following edited transcript shares highlights from the conversation. For more discussion of the banking issues that matter, follow Talking Banking Matters on your preferred podcast platform.

Roshan Varadarajan, McKinsey: Johan, you’re a payments industry veteran, having already started and sold the payments processor Bambora. And now you’re leading an open-banking payments provider. What’s your vision for open banking and accountto-account (A2A) payments, and how does Trustly fit into it?

Johan Tjärnberg, Trustly: My perspective on account-to-account and open banking is quite simple in the sense that if you think about where we are today, Trustly has built a connectivity infrastructure to banks in Europe and North America where we have the ability to reach roughly 650 million consumers in those markets. The experience for many of these consumers today might not be the best possible open-banking or account-to-account experience for a variety of reasons, but it is getting steadily better and better for more and more people as the infrastructure improves.

That infrastructure we’re building out has two components. One is the evolution of the real-time banking clearing infrastructure, where you see a lot of things happening around the world. We all have experienced Faster Payments in the United Kingdom. We are seeing a similar initiative in the United States with FedNow and in multiple other markets with similar programs. So that part of the infrastructure is improving all the time.

And then the second piece of that infrastructure is very much around the quality of data we can extract from the APIs connecting this infrastructure with the banks. We see a similar trend here in that either banks are forced through regulatory initiatives to provide quality data, or it’s market driven, as it is in the US, where more and more banks are issuing their own APIs and the quality is getting better and better.

So I think overall, the A2A experience will become better for more people every day. But I also think this is not enough. Open banking is purely infrastructure in that sense, and I think the winner in this space is very much going to be the one that can build technology functionality on top of this quality infrastructure.

For Trustly, it’s very much around the data: How can we really embed data into the transaction to provide a better experience for the consumer and a more secure experience? And then while the infrastructure continues to improve, we also are finding ways to close some of the gaps in the payments landscape. For example, on the [payment] settlement side, in those markets where we don’t have a well-functioning clearing system or real-time infrastructure, we have built proprietary settlement rails, where we have bank accounts in multiple banks to be able to do what are basically en masse transactions and provide that kind of real-time experience even before we have a well-functioning infrastructure in place.

So we take a ten-year perspective. We hope to become a new payment network where everybody can leverage our technology and we can provide benefits to the consumer.

Roshan Varadarajan: A2A payments have been slower to gain traction compared to digital wallets and peer-to-peer transactions, especially in certain verticals. We see A2A is prevalent in gaming and recurring payments to the telcos for phone bills and the like. But other verticals that are more commerce oriented have had slower uptake. Where is your value proposition strongest in that context? How do you see the landscape evolving?

Johan Tjärnberg: Clearly, there also is a fairly big shift going on here, so if you go back three to five years, most of the use cases for account-to-account or open banking were more transfer use cases where you as a consumer transfer money into an account in a different environment. That might be in the financial services space or in a gaming space, for instance.

But I don’t really look at this from a vertical perspective. I look at it more from a product use case perspective. For example, we have our deposit product, which targets the consumer transfer environment. And we have the payment product, which is for retail use cases. And I think we can argue that there has been quite a lot of success in the retail space for A2A payments if you look at the schemes such as UPI in India, Pix in Brazil, Swish in Sweden, and iDEAL in the Netherlands.

So I don’t think this is a consumer adoption issue. As long as you can provide a great experience, a great product to these use cases, adoption will happen, as we see from these other examples.

Roshan Varadarajan: Going back to your point that you see Trustly’s offerings in terms of products, not verticals, what other products do you offer?

Johan Tjärnberg: We also have the recurring-payment space, and there are different drivers behind that than for the other use cases. We have seen that A2A or direct debit have been quite popular for making recurring payments for things like phone bills. But it’s a quite cumbersome setup, and this is also where open banking and data come into play. If you just look at the eurozone, you have 10 to 12 percent of all payments set up through direct debit that fail due to what are basically errors in the onboarding process. You have to manually enter your IBAN number, and that is clearly friction. We can solve that by adding open banking and data capabilities and making the onboarding process 100 percent digital, removing all of this friction.

You have the same thing in recurring payments on the charging side, where you work today in the traditional direct debit rails with very static charging. There is no intelligence behind the charging. That’s also an area we can solve, and this is probably one of the most exciting things for us right now: We launched fully open banking, including some ML [machine learning] and AI technology, to this space in eight European markets.

So we look at this more from the perspective of our products—what problems we are solving with the product. And then we attack different use cases with that, rather than looking at this from a market-led or vertical-led opportunity or strategy.

Roshan Varadarajan: Open banking and A2A payments are also much more prevalent in Europe than in the United States, where credit cards and their extensive loyalty programs are popular. Even without that, entering the US market is always a huge challenge, no matter the company or industry. You entered the US in 2019 through a merger with the Silicon Valley–based PayWithMyBank. How are you approaching the American consumer?

Johan Tjärnberg: The market drivers in the US are quite different to the drivers in Europe. And it’s much more market driven, or driven by large enterprise customers rather than by regulation. We have been able to build up a $150 million business in a relatively short period of time in the US, and all of it has been driven by just a couple of things. One is we have a number of large enterprise clients in certain segments. We also have our sports-betting vertical in the US, but we have also been extremely successful in the biller segment with Verizon and T-Mobile, et cetera, where again we are solving a problem for them in terms of cost but also leveraging data in new and better ways.

Coming back to the underlying banking infrastructure in the US, you can’t build any kind of experience that competes with card or other main payment methods unless you build some capabilities in functionality on top of the traditional ACH [automated clearing house] rails.

What we have done, and I think that’s the single most important success factor for us, is that we are providing a guaranteed service to the merchant, meaning that we are guaranteeing the payments from the consumer up front in real time, instantly. The problem is that we cannot execute the payment from the consumer’s account instantly, so we have to take a risk, and we need to be extremely smart in how we manage that risk. So all in all, if you look at the Trustly portfolio, we probably operate today with 35 or 40 basis points of losses on account of that risk that we consume, which in many cases is driven by nonsufficient-funds issues. But we can still operate healthy unit economics in a market like the US with that kind of cost base. We can still give a lot of efficiency back to the merchant vis-à-vis the cost of a card transaction.

Roshan Varadarajan: One aspect of A2A payments that has proven to be a challenge is chargeback mechanisms, which are the recourse that consumers have to get a payment returned when disputing a transaction. These mechanisms vary from market to market, unlike with other credit, debit, or prepaid card schemes. How do you think about this type of consumer protection, whether it’s used against scam fraud or for dealing with damaged goods received?

Johan Tjärnberg: This is an area where we are having to take more of a market-to-market approach because of regulation, so the infrastructure setup for this will look a little bit different, on both the fraud side and the chargeback side. In most cases, it’s sort of bilateral agreements between banks on one side, us on the other, and merchants on the other end, so it hasn’t really been as big a topic as you would imagine.

We have chosen a strategy where we are working with more big enterprises, who are credible customers and who also take quite a lot of responsibility themselves vis-à-vis the consumer in terms of refund chargebacks and so on. But this is an area that will mature over time, even though it is not really a standardized approach on a European or US or global basis.

Roshan Varadarajan: You mentioned that Trustly uses data to optimize the checkout experience for consumers. Do you imagine other capabilities, maybe around personalization or fraud detection and prevention?

Johan Tjärnberg: Let me start with our main sources of data. One main source is the banks and accounts we are capturing data from. The other one is our API with merchants. In 95 percent of our agreements with merchants, we extract data from the merchant itself through the API. There are also a number of other data sources from the device you’re shopping from, such as geolocation data. We’re working with 30 to 40 different data sources that are triangulated. That allows us to offer a better customer experience.

In the US, we’re using basically the same pool of data for the scoring of consumers, given that we are guaranteeing payments up front to the merchant and we take some risk on the consumer side. On the recurring payment side, it’s more, “How can we take this supposition where we can almost predict lifetime value for the merchant?” That’s also where we use some machine learning and other AI technology. So it’s a number of different use cases and value we can bring with this, including fraud as you mentioned. We are far from seeing the end.

Roshan Varadarajan: As payments increasingly shift to mobile devices, the device makers such as Apple, Samsung, and Google are increasingly offering payment services via digital wallets. Do you see them as competition, since the devices are essentially wallets storing cards?

Johan Tjärnberg: We definitely see them more as our partners. We are seeing a big change over the last 12 or 18 months, where we find we are spending much, much more time with those guys than we ever did before. I have a hard time imagining that they will move into becoming banks or financial institutions themselves, and we know they’re willing to partner with others.

Roshan Varadarajan: Trustly has engaged in a fair amount of mergers and acquisitions in recent years. Talk a little bit about your kind of philosophy about M&A: How do you integrate assets from a technology and operations perspective?

Johan Tjärnberg: All of them have been very small compared to the overall Trustly. The Trustly story is primarily an organic play. It’s extremely important to operate a single tech stack, a one-platform strategy. Many of us have also learned from the past that few companies have succeeded with a big-bang M&A strategy.

For me, the tech and platform angle is most important. So I don’t think you will see a lot of acquisitions going forward. We look at some things from time to time, but really those would be more a case of adding capabilities to our existing technology. I don’t see participating in some kind of a consolidation game either. We would never acquire a company that has the same capabilities as we. Time to market is so important right now, and with a massive tech stack, you lose out big-time.

Roshan Varadarajan: Before joining Trustly, you had an extensive career in payments before you started Bambora in 2015, which you later sold to Ingenico. You’ve also worked with marquee private equity sponsors and also put in time at some of the big payments infrastructure providers. You served as Trustly’s board chair for several years before taking on the Group CEO role. What led you to get more involved and take on the Group CEO role at Trustly?

Johan Tjärnberg: To be perfectly honest, after my Bambora journey, I was quite tired. I didn’t know if I had the energy to go back to a CEO role again. I took almost a year off and made some investments on my own, but I learned that I didn’t get the same energy out of that. I love the day-to-day pulse, and right now I’m feeling that I can do payments for another 30 years.

I’ve had the benefit of operating in a bit of a disruptive environment, and I think Trustly is at a different level of disruption and game-changing opportunity. You don’t really get that many chances in your life where you get to help take a business from a start-up situation to more of a scale-up situation and one that involves a massive market opportunity.

One of the reasons I enjoy this so much is that you get to learn something every day as a leader, and you can improve your leadership skills. I think a modern CEO should have the capacity of working with roughly the top 40 to 50 leaders in the business. I’m a big believer in the idea that if you get your top 40 or 50 people right, the rest of your 1,000-plus army will follow. I talk to most of these people if not once a week, at least every second week, either formally or informally.

And I think in an environment like Trustly or any disruptor or fintech environment, you need a strong leader with a strong conviction. I think I’m very clear about where I want to take the business in terms of strategy and the direction of travel. That’s super important in an environment like Trustly, because there is always a risk that you lose focus and try to do too many things. So conviction is important for me.