An Insider’s Perspective on Pay-by-Bank

Over 268 million consumers completed online transactions in 2022 – over 80% of all Americans. Meanwhile, credit card processing fees in the U.S. are the highest in the world, and credit card fraud is also on the rise, making both merchants and consumers reevaluate how they transact online. Emerging payment solutions are gaining traction that can help consumers and merchants avoid the drawbacks of online transactions: Pay-by-Bank.

‍Why Pay-by-Bank?
‍Pay-by-Bank is a new payment method that allows consumers to pay directly with their bank account.

Once a consumer adds an item to their cart and goes to the checkout page, they can select the Pay-by-Bank option and sign into their mobile or online banking app. They then choose their bank account to validate the transaction and once validated, the transfer is made directly from their checking account to the merchant’s bank account.

While this transaction model is still very new, there are a range of benefits associated with Pay-by-Bank:

‍1. Reduced fraud – U.S.losses from credit card fraud will total $165 billion over the next 10 years. When a consumer is able to pay straight from their bank account, they are protected by layers of security protocols through their device, their bank, and the payment processor.
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‍2. Frictionless user experiences –Fewer than 50% of consumers have a credit card number saved on a mobile payments app, meaning that the other half has either memorized their card number, or has to retrieve their physical card when paying. Alternatively, with Pay-by-Bank, customers can authenticate their transaction directly from their phone through their mobile banking app, no card required.

‍3. Lower fees – Credit card processing fees add up, especially for large merchants that process millions in credit card payments annually. These fees can typically range from 2.87%to 4.35% per transaction. Pay-by-Bank gives merchants and their customers another way to transact, reducing credit processing fees for businesses.

‍4. Better payment method for high-dollar transactions – If a business only accepts credit cards, and the customer doesn’t have a credit limit high enough to support the transaction, they may walk away and look for a merchant who can serve their needs. Pay-by-Bank overcomes obstacles related to large transactions by offering direct access to bank – held funds that are guaranteed.

‍5. More engaged customers– For financial institutions, Pay-by-Bank presents an opportunity to stay more connected with customers. Instead of diverting customers to third-party apps or payment channels, like Venmo, customers can initiate payments from within their digital banking app with minimal friction.

The future of Pay-by-Bank is still evolving, but it has potential to change the payments landscape, especially in eCommerce. Pay-by-Bank is worth monitoring, especially as adoption of instant payments continues to fuel innovations in how we transact.