Pay by Bank 101: A Complete Guide to Accepting A2A Payments
Although we sometimes think about cashless payments as a product of the digital world, the truth is that cashless systems extend back much further than the advent of the microchip. After all, coins, paper bills, and other forms of intrinsically valuable “commodity money” can be cumbersome to carry and a risk to keep on your person. Because of this, it has been a major priority of bank services and financial institutions to encourage cashless transactions.
That said, it wasn’t until the digital revolution that banks finally made a cashless society a possibility.
While debit cards are now a staple of cashless transactions, there is a new form of cashless payments built on established Open Banking principles. This approach is called Pay by Bank Account (or Pay by Bank, for short), and its benefits are starting to change the way that consumers and merchants prefer to do business. But what exactly is Pay by Bank? How does it relate to Open Banking? And, perhaps most importantly, what are the benefits to be aware of as a business? In this article, we’ll cover everything you need to know about this new cashless payment method.
What Is Pay by Bank?
Pay by Bank is a cashless payment option that cuts out the middleman represented by the credit card company or other service providers. Instead, a Pay by Bank transfer directly connects two bank accounts (the consumer’s and the merchant’s), moving money instantly from one to another.
How Does Pay by Bank Compare to Open Banking?
Pay by Bank is the newest iteration built on the Open Banking concept. In Open Banking, financial institutions make their application programming interfaces (APIs) available to third-party institutions. This allows merchants and service providers to build their own applications and create new services utilizing consumer-permissioned data, allowing consumers to authorize payments directly from their accounts securely and efficiently.
Open Banking gives consumers the freedom they crave, rather than being forced to rely on proprietary resources from individual institutions, merchants and consumers can take greater control over how they do business.
Although Pay by Bank and Open Banking are not, strictly speaking, the same thing, they are closely connected as Pay by Bank payments rely on Open Banking solutions.
How Does Pay by Bank Work?
Pay by Bank creates a secure connection between your accounts and the accounts of your consumers. This allows you to facilitate secure payments for goods and services from account to account. There is no need for anyone to enter payment details, log into multiple accounts, or remember complex passwords. The consumer needs only to login with their online bank credentials at the time of checkout to easily and securely finalize their purchase.
The payment experience is a simple one. When making Pay by Bank transactions through the merchant app, the consumer selects the “Pay by Bank” option and confirms validation using their login credentials. Once the payment is confirmed, the funds are available to the merchant. The amount is then moved from the individual’s account and transferred to the merchant’s account.
The best part? Consumers never have to share their bank account number, card details, or any other identifying details outside of the app, so they can always make payments securely.
How Open Banking and Pay by Bank Disrupt the Payments Status Quo
For decades, credit and debit card networks have dominated the consumer payments space, collecting substantial fees with each transaction. At the same time, money transfers have typically been handled in batches at set intervals, frustrating users who expect their money transfers to happen quicker. Fortunately, the arrival of Open Banking frameworks and innovative solutions like Pay by Bank are disrupting the way money is sent and received.
By utilizing open APIs and real-time payment rails, Pay by Bank enables direct account-to-account transfers without being slowed down by middlemen at the credit card companies. As a result, the speed and cost savings of Pay by Bank technology make legacy payment options look outdated by comparison.
For many years, major banks and credit card networks have held substantial sway over payment systems and profited massively from interchange fees. Now, these new payment methods are flipping the old payments ecosystem on its head. Rather than banks and card networks raking in profits, the value of this new model is centered around initiating payments and data collection.
That being said, the dominant players like credit card networks won't vanish instantly. Instead, they're facing pressure to justify their ongoing fee hikes and slower settlement times while this new payments technology continues to evolve.
The evolution of Pay by Bank is affecting more than just the banks and credit card companies though. On the consumer side, people are gaining greater control over how they securely authorize their transactions. And for business owners, integrating FinTech solutions gives them greater access to lower payment costs when compared to more conventional card options.
5 Benefits of Pay by Bank
Pay by Bank offers many advantages over traditional debit card payments and other options.
1. Reduced Need to Store Sensitive Buyer Data
Online account-to-account (A2A) payments move money directly from one location to another without the need for receiving parties to collect or hold onto customer card data or excessive amounts of personal information.
This not only reduces the merchant's data storage demands but also reduces the risk associated with mishandling customer information. Account-to-account payments through Pay by Bank ensure that sensitive information remains solely with the consumer, protecting them and the merchants they do business with.
2. Streamlined Connectivity
Working within banking APIs via Open Banking solutions makes it easy to establish connections between consumer and merchant accounts. Consumers simply follow the on-screen instructions within the app using their login credentials through their banking platform. They are then instantly connected to the merchant’s treasury system. In most cases, the entire process takes seconds.
3. Reduction of Processing Fees
Regardless of what side of the transaction you’re on, when you work with cards (debit or credit), you have to accept that fees are a natural part of the process. But Pay by Bank doesn’t use the card networks. This means the high processing fees that have long been associated with card payments are a non-issue. Because Pay by Bank runs on automated clearing house (ACH) rails, transaction fees are dramatically lower than those generally associated with card payments.
4. More Direct Processes
Any time you add a link to the chain, the process will slow down. Pay by Bank optimizes and simplifies the processes associated with digital payments. By transferring money directly between accounts, consumers and merchants can enjoy a faster conclusion, free from waiting on time-consuming settlement and clearing processes.
5. Increased Security
Possibly the most significant benefit of using Pay by Bank is the increased security. As mentioned above, consumers can make digital payments without sharing sensitive personal details or bank account numbers. Instead, they leverage their bank’s established authentication network to confirm their identity and finalize their payments.
5 Potential Downsides to Pay by Bank
While Pay by Bank offers plenty of advantages, there are also challenges that could hinder adoption or cause negative user experiences if not properly addressed.
1. Security Concerns
Linking bank accounts directly to merchants raises understandable concerns around account vulnerability or fraud. While Nacha reported that ACH payments have the lowest fraud rate by value, according to a survey conducted by the Federal Reserve, consumers may still have reservations.
Providers must implement bank-grade security equal to the strongest online banking protections to help combat potential issues. Similarly, identity verification, multi-factor authentication, and transaction validation protocols are essential for building trust.
2. Dispute Resolution Changes
With card payments, dispute resolution processes allow charges to be challenged and reversed. While this is a great feature for consumers, it also means that new standards must be established for Pay by Bank refunds and arbitration processes. As funds settle instantly, users will want recourse options if transactions appear erroneous or fraudulent.
3. Technical Connectivity Issues
Any reliance on API integrations and real-time payment rails also means Pay by Bank likely faces latency, downtime, or debugging issues. However, setting up emergency contingency protocols for connectivity failures with fallback funding options would help minimize consumer headaches around these issues.
4. Customer Support Implications
Frontline merchant and banking support staff will require extensive guidance on Pay by Bank capabilities, protocols, and troubleshooting. As new payment paradigms shift, customers are bound to get confused unless they have strong training or onboarding to help them address and resolve questions around these new Pay by Bank methods.
5. Adoption Resistance Factors
For consumers accustomed to credit card points, digital wallet conveniences, and payment app connectivity, adjusting to a new payment method will have a slight learning curve. But as long as they have enough education on these new payment methods (and attractive financial incentives) that reluctance can quickly transform into enthusiasm.
Practical Applications of Pay By Bank
Pay by Bank delivers versatile payment solutions for merchants. . Consumers can utilize account-to-account transfers seamlessly across e-commerce platforms, mobile environments, or for bill pay.
Online Shopping
Within e-commerce apps and mobile sites, shoppers can select a Pay by Bank option at checkout after adding items to their cart. They then simply log in with their banking app credentials, review the purchase details, and authorize the payment. In seconds, the transaction processes directly through bank accounts without redirecting to a separate payment portal. This allows consumers to finish online purchases swiftly and without repeatedly inputting their card details or account numbers.
Mobile Purchases
Pay by Bank also facilitates transactions through mobile devices, powering payments through retailers, food delivery, and ridesharing apps. Once again, customers can avoid toggling between applications to submit payments separately.
For example, when ordering an Uber, the integrated payment confirmation enables riders to complete their trip through their banking app validation rather than a distinct PayPal or credit card flow. That’s one less app to worry about!
Paying Bills
And finally, Pay by Bank presents a viable alternative to paying bills each month – bypassing the need for traditional checking accounts or credit cards. Instead, consumers can grant their billing companies secure direct access to their bank accounts. Then, once these permissions are in place, bill payments can be set up for auto-withdrawal upon receiving the monthly invoice.
Will Consumers Actually Adopt Pay by Bank Over Traditional Cards and Wallets?
Even though Pay by Bank offers plenty of conveniences for its users, the real question is whether consumers will embrace direct account-to-account transfers over familiar card payments. After all, physical cards provide convenience, rewards incentives, dispute resolution services, and widespread acceptance that new payment rails have to contend with.
All that said, there are still plenty of reasons why consumers would want to switch to Pay by Bank anyway. Pay by Bank platforms offer clear cost-saving benefits. By cutting out card network fees, merchants can pass on reduced prices. Additionally, tapping into faster payment infrastructure gives consumers real-time access to refunds, payouts, etc., rather than delayed settlement times.
The adoption of Pay by Bank also depends on how seamless and secure the user experience proves for managing payments across banking apps, merchant sites, and payment services. Converting login credentials into purchases must feel as frictionless as tap-and-go card transactions. However, consumer perception of better value and heightened data privacy with Pay by Bank could make them prefer Pay by Bank anyway.
Ultimately, for Pay by Bank to gain more market share, providers must leverage Open Banking APIs to build robust identity verification and bank-grade security measures into every transaction. Maintaining trust and transparency around new payment processes will ensure customers feel their financial data and money is as safe as current payment methods.
Implement Pay by Bank Today With Trustly
Cashless payments have long been the preferred purchasing method for consumers and merchants alike. But while traditional digital payment options have created a world of convenience for merchants and consumers, they’re not perfect solutions.
Trustly’s Open Banking solutions are taking Pay by Bank further. Our Open Banking Payments helps merchants create a streamlined user experience for their consumers.
Consumers can pay using information they already know — their online banking credentials — within the merchant app for a seamless checkout experience. There’s no need to leave the merchant app to download a separate payment app or start a new account.
Increase your revenue with full customer authentication and higher payment approval rates. You can operate securely knowing that with Trustly, you’ll never again have to worry about chargebacks — we guarantee every payment we approve. Learn more about Open Banking Payments to put the power back in the hands of your consumers.
