GoCardless opens up for dead simple, low-cost payments

Disruptive U.K. payments startup GoCardless is rolling out its latest service to let anybody pay out or collect money in seconds — without paying hefty transaction fees.

Until now, the Y Combinator-backed company had concentrated on a business-focused service that required hooking into its API. But on Thursday, it’s taking the wraps off a friendlier, simpler option that opens it to a much wider audience.

Using the system, dubbed “PayLinks”, could hardly be easier: the recipient (perhaps an online retailer, a charity, or even somebody who wants to split the dinner bill with friends) logs on, says how much they want and gives a bank account for the money to be paid into. The system then spits out a link that can be sent to anyone, embedded into a web page or broadcast online, and when anyone follows the link they see a page that tells them what they’re buying, asks them to enter their bank details and then… boom, the money comes out of their account.

“Our goal is to create one click payments across the web,” says Matt Robinson, a co-founder of the London startup. “We’d built an API wrapper for direct bank transfers, and now we’ve got a really simple web interface.”

It’s an interesting route to take.

While other startups like Square and iZettle try to disrupt the payments industry by democratizing the ability to take card payments, GoCardless has chosen to focus on direct transfers and simply skip around the system used by AmEx, Visa, Mastercard, and others. It has required some regulatory approval and close contact with banks, but it also means they can levy a very small commission on payments that’s attractive to users — 1 percent of the transaction total, up to a maximum of £2 ($ 3.10). The maximum transaction size is currently £5,000 ($ 7,700).

For anyone wanting to receive payments, it’s an attractive option: for businesses it’s a lot simpler than going through the hassle of setting up payment gateways and wrappers; for casual users, it means they don’t need a specific merchant accounts or go through a complex sign-up process. And for users, it’s as easy as anything else out there.

So can this push them on? Right now the system has been seeing strong growth of 50 percent each month, and with a $ 1.5 million seed round from Accel, Passion, SV Angel, Start Fund and ACE, it’s pushing hard to develop further. But the company hopes this simple approach can broaden out the user base and kick it on to the next level.

“Where we saw the most traction before was when a partner, Kashflow, integrated with us — we saw huge uptake,” says co-founder Hiroki Takeuchi. “So we figured ‘how could we make it easier to use?.”

While he admits that isn’t for everyone, not least because it’s only available in the U.K. right now, Takeuchi says credit card technology “was designed in the 1950s when there was no real way to translate account details” and that there’s no real reason people should be stuck using awkward credit card payment systems that cost everyone dear.

Not necessarily plain sailing

There are a few hurdles to overcome for the business, however. Although it has the regulatory approval it needs, and the support of major banks — but it still has to tackle some thorny issues. While most people are familiar with direct debits, bank transfers and BillPay services, they may need some coaxing to enter their bank details on a third party site like GoCardless.

“Seventy three percent of people in the U.K. have at least one direct debit set up from their bank account,” says Robinson, in his company’s defence. “If I’m buying from a merchant I trust, I’m happy to give them my details.”

That may be true for some people, but not everyone. Bank transfers are usually conducted at either end of the financial spectrum — with large businesses or close friends — not the hinterland of small sellers that GoCardless seems to be targeting.

In America, in particular, many consumers recoil in horror when the prospect of handing out their bank details comes up.

There are precedents, though. PayPal, of course, works in a similar sort of way — you can connect your PayPal account to a bank account, and ask people to send you money simply giving them your email address (and paying a substantially larger fee). But PayPal is PayPal: everybody knows them, and they’ve become a de facto standard for online payments.

And then there’s another trust issue. What about fraud? What about phishing? Dwolla, which uses a similar approach in the U.S., was hit by a lawsuit earlier this year after it blocked some payments over fraud concerns. This is clearly an issue where trust in GoCardless’s brand is important.

There is another option, however: focus on areas where trust in interbank transfers is already high.

That’s where GoCardless is looking. Bank transfers are much more common in continental Europe, where card services have lower penetration. This is clearly the company’s next target, and the single regulatory market across the EU means they’ve got approval to operate across the entire continent.

“It’s a big difference between the U.S. and Europe,” says Robinson. “People in Europe are much more used to using their bank accounts — in some countries like Germany and the Netherlands, most transactions are done by bank transfer.”

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