Introduction 

In the rapidly evolving world of digital payments, consumers and businesses alike are seeking solutions that are faster, more secure, and cost-effective. One payment option gaining traction globally is Pay by Bank, an alternative payment method that allows consumers to make digital payments directly from their bank accounts without the need for credit cards or third-party intermediaries. 

In this article, we'll explore what Pay by Bank is, why consumers are increasingly opting for it, and the many benefits it brings to businesses. We’ll also dive into how it works, the challenges it faces, and the role of incentives in driving adoption. By the end, you’ll understand why Pay by Bank might be the ideal addition to your business’s payment options.

What is Pay by Bank?

Pay by Bank allows consumers to make payments directly from their bank accounts, bypassing traditional card networks. Instead of entering card details, consumers can authorize payments directly through their bank using a secure authentication process, often leveraging multi-factor authentication (MFA) or biometric technology. Pay by Bank offers a streamlined experience, particularly suited for mobile and online payments, and supports a range of transactions from e-commerce purchases to recurring bill payments.

Why Are Consumers Choosing Pay by Bank?

Consumers are increasingly choosing Pay by Bank because it eliminates the need for credit cards, making it accessible to consumers who prefer to manage their spending without credit or interest obligations. 

Additionally, Pay by Bank offers a secure, straightforward payment option. With concerns about data privacy and fraud on the rise, consumers value the direct bank authentication process, which reduces exposure to potential fraud or phishing attempts.

Furthermore, for users without a strong credit history or who may face credit limits, Pay by Bank provides a flexible, inclusive payment alternative.

What's In It for You and Your Business?

Businesses stand to gain several benefits from offering Pay by Bank as a payment option. It’s a cost-effective alternative to credit card payments, with lower transaction fees and reduced costs associated with chargebacks and fraud. Pay by Bank also supports faster settlements, improving cash flow for businesses by providing near-instant access to funds, compared to the typical two-day settlement time for card payments.

1. Lower Transaction Costs: Credit card payments come with high interchange fees, often around 3% per transaction. Pay by Bank typically incurs much lower fees, allowing businesses to save significantly on processing costs. 

2. Reduced Fraud Liability: With Pay by Bank, customers authenticate payments directly through their bank. This method not only strengthens security but also shifts fraud liability to the bank, resulting in fewer chargebacks and reduced risk.

3. Faster Access to Funds: While card payments usually involve batch processing and delays, Pay by Bank can leverage real-time payment rails, allowing businesses to receive funds faster.

4. Increased Stability for Recurring Payments: Bank accounts don’t expire like credit cards, which helps reduce disruptions for recurring billing, subscriptions, and other repeat payments.

5. Enhanced Customer Experience: By eliminating the need for credit card details, logins, and passwords, Pay by Bank simplifies the payment process, leading to fewer steps at checkout and higher conversion rates.

6. Reduced Cart Abandonment: Offering Pay by Bank as an alternative payment method provides consumers with more choice, reducing cart abandonment rates. With a variety of payment options, consumers are more likely to complete their purchases, leading to higher conversion rates.

How Does Pay by Bank Work?

For Consumers  

The Pay by Bank experience for consumers can be broken down into three steps - Authentication, Authorization and Movement. In many cases the consumer can opt to have the first step done only once, providing a truly frictionless experience.

1. Account Verification - When a consumer selects Pay by Bank at checkout, they’re prompted to choose their bank from a list of supported institutions. They’re then redirected to their banking app or online banking platform where they verify their account, usually by logging in with their banking credentials or using biometric verification.
2. Authorization - Once the account is verified, the consumer authorizes the payment within their bank’s secure environment.
3. Money Movement - After authorization, funds are instantly moved from the consumer’s bank account to the business’s bank account via ACH, RTP or FedNow. This payment transfer completes the purchase without card networks, providing immediate confirmation to both parties.

For Businesses  

Businesses integrate Pay by Bank into their payment stack, typically through an API provided by their Embedded Finance platform or payment processor. Transactions are processed in real time, and businesses receive notifications of successful payments. The funds are transferred directly from the consumer’s account to the business’s account, often settling immediately, depending on the payment rail.

The Challenges with Pay by Bank

While Pay by Bank offers many benefits, it faces a few challenges that businesses should consider. Adoption among consumers, especially in regions where credit card usage is deeply ingrained, can be slow. Some consumers may be wary of linking their bank accounts for online purchases due to privacy concerns or lack of familiarity. Additionally, not all banks are compatible with Pay by Bank yet, which can limit reach and acceptance.

On the technical side, integrating Pay by Bank may require specific API capabilities and could necessitate partnerships with banks, embedded finance platforms or payment processors that support bank-based payment rails. 

The good news is that these challenges can be easily overcome by working with an experienced platform that can guide you through implementation and operation. This, when combined with the right incentive program can lead to very successful outcomes.

The Role of Incentives to Encourage Adoption

To encourage consumers to use Pay by Bank, many businesses offer incentives like discounts or loyalty points for choosing this payment option. These incentives can help overcome consumer hesitation, reward early adopters, and position Pay by Bank as a preferred payment method. In some cases, offering a small discount or fee reduction can effectively offset the lower transaction fees for the business, creating a win-win situation.

Moreover, providing clear information on the security and convenience of Pay by Bank can also drive adoption. Highlighting its benefits in the checkout flow—such as faster processing, security measures, and ease of use—can help familiarize consumers with the option and encourage them to give it a try.

Conclusion

As digital payments continue to evolve, Pay by Bank is emerging as a valuable alternative for both businesses and consumers. By offering lower costs, enhanced security, and faster settlements, Pay by Bank is a compelling addition to any business’s payment options. As businesses look to innovate and adapt to changing payment trends, Pay by Bank provides an opportunity to meet the demands of modern consumers while gaining a competitive edge in the marketplace.