The Growth of Pay by Bank - The Hard Facts

Card payments and innovative payment processors have had a truly transformative impact on global financial inclusion, enabling entire economies to transition from cash-based payments to digital alternatives and facilitating the proliferation of e-commerce. 

Bank payments were slow to adapt to the Internet revolution. However, through regulatory initiatives and fintech innovation to deploy fast and secure payment rails and user experiences, Pay by Bank is gaining momentum as an online checkout payment method.

Today, both card payments and Pay by Bank have become important options at checkout, each method offering a distinct set of benefits and challenges.

The Fight Against Fraud

Card payments have been the bedrock of e-commerce for decades, and with good reason. In 2022 alone, Visa, Mastercard, and other major card networks processed an astounding $42.7 trillion globally. Despite their ubiquity, card payments are subject to fraud. Card details and other personal financial information is imputed by users when paying by card online, opening the door to data theft and resulting fraudulent activity.

Pay by Bank, in contrast, is built with security at its core. When making a Pay by Bank payment, consumers authenticate transactions directly within their banking app. This in-app verification adds an extra layer of security, reducing the chances of fraudulent activity. Additionally, Pay by Bank is expanding its capabilities with features like Variable Recurring Payments (VRPs), which allow customers to authorise recurring payments after initially approving a transaction through their banking app, and manage all VRPs from a single interface. VRPs, set to be introduced in the UK ahead of the rest of Europe, are a compelling alternative to card-based scheduled payment models, offering both enhanced security and user convenience.

Convenience: Prioritising User Experience

Card payments have traditionally required manual entry of details like card numbers, expiration dates, and security codes, a process that can be cumbersome for users, especially on mobile devices. Pay by Bank, on the other hand, offers an inherently simpler process. Instead of manually entering any personal financial information, users are redirected to their banking app, where they can confirm the payment in just a few clicks.

With the rise of digital wallets and autofill technology, however, card payments are closing the user experience gap. Solutions including Apple Pay, Google Pay and PayPal are helping to streamline the checkout process by allowing consumers to store their card details securely and make payments without manually entering payment details. However, usage is not ubiquitous with consumers still needing to manually register cards with each digital wallet, and their additional costs are causing merchants to seek out an alternative. Bank accounts, on the other hand, have seen universal adoption across developed markets, and Pay by Bank interacts with consumers through a simple and consistent interface within their bank’s app.

Differing Merchant Propositions

For merchants, payment processing fees can significantly impact the bottom line. Card networks typically charge between 0.5% and 2.5% per transaction, with fees varying by region and payment method.  Pay by Bank, in contrast, tends to have much lower fees; because there’s no need for intermediaries like card networks or acquirers, the cost of processing Pay by Bank is notably lower than card payments.

Beyond cost savings, Pay by Bank enables several other benefits for merchants. One of the most notable is speed; in the UK, Australia, and parts of Europe, Pay by Bank is settled almost instantly, compared to the 1-2 days typically required for card payments. Faster settlement times mean quicker access to funds, improving cash flow and allowing businesses to operate more efficiently.

Refunds are another area where Pay by Bank shines. While card refunds can take several days to process, many Pay by Bank providers offer near-instantaneous refunds, enhancing the customer experience during a process crucial to customer loyalty.

Finally, the flexibility of Pay by Bank integrations sets it apart from traditional card payments. The most innovative platforms enable easy integration with third-party services like loyalty programs, emissions-mitigation platforms, and more. These integrations allow merchants to create unique, value-added experiences for their customers, driving differentiation in the often crowded space of e-commerce.

Card payments have played a crucial role in the proliferation of e-commerce, and have been rewarded with universal acceptance across all corners of the internet. However, Pay by Bank has earned a place by their side, enabling increased security and convenience for consumers, and a better deal for merchants.