Pay by Bank (PBB), often referred to as account-to-account (A2A) payments, is steadily gaining traction as a compelling alternative to traditional card payments.
Pay by Bank: The current state of play
By leveraging banking rails, Pay by Bank offers lower processing fees for merchants and real-time settlement efficiencies for banks.
While it has faced hurdles in achieving widespread adoption, recent advancements in Open Banking and consumer incentives are setting the stage for Pay by Bank to reshape the payments landscape.
A Game-Changing Opportunity for Merchants
Merchants stand to benefit significantly from integrating Pay by Bank at the checkout.
Unlike card payments, which carry processing fees, PBB reduces these costs while also eliminating the risk of chargebacks.
Recent surveys highlight that 66% of global merchants believe PBB will eventually replace payment cards.
Early adopters such as JD Wetherspoon, Just Eat, Ryanair and Farfetch are already using PBB, signalling a growing interest in the method.
One of PBB’s biggest draws for merchants is its potential to streamline operations.
By pairing PBB with technologies like mobile scanning and digital identification checks, retailers could reduce infrastructure and labour costs.
For instance, supermarkets like Tesco and Sainsbury’s could incentivise PBB adoption by offering additional loyalty points, further encouraging consumers to shift their payment habits.
Overcoming Consumer Adoption Barriers
Consumer behaviour remains one of the toughest challenges for PBB.
Payments are deeply ingrained habits, and breaking these requires sustained effort. Research shows it takes an average of 66 days to form a new habit, and payment behaviours are no exception.
Incentives have proven effective in driving adoption. For example, Uber offered users a 40% discount on future rides for signing up for its PBB feature, Link, powered by Stripe.
To accelerate adoption, stakeholders must prioritise educating consumers about PBB’s benefits.
For instance, while credit cards are often perceived as safer due to buyer protections, PBB’s secure, multi-factor authentication system offers robust safeguards against fraud.
By pushing these security features and providing clear value propositions, providers can dispel misconceptions and build trust.
A Secure Solution to Combat Fraud
Fraud is a critical concern in the payments industry, accounting for over 40% of all crime in England and Wales.
With the rise of e-commerce, payment scams – such as authorised push payment (APP) fraud – have surged.
The UK’s Payment Systems Regulator recently mandated that payment service providers compensate APP fraud victims within five days, increasing pressure to address fraud risks.
PBB’s built-in authentication mechanisms, requiring consumers to authorise each payment through their banking app, naturally comply with strong customer authentication (SCA) requirements.
While issuer banks may experience reduced card revenues, the drop in fraud losses could significantly transform their business models.
Moreover, PBB’s security benefits extend to consumers, offering greater protection against unauthorised transactions compared to traditional cards.
Educating consumers about these advantages will be crucial in driving adoption and addressing concerns about buyer protection.
Collaboration is Key
For Pay by Bank to become a mainstream payment method, collaboration among key stakeholders – government bodies, merchants, payment issuers and acquirers – is essential.
Open Banking advancements and API improvements have already laid the groundwork, but further efforts are needed to standardise user experiences across platforms.
PBB’s potential extends beyond retail as well.
Use cases such as Variable Recurring Payments (VRP) could replace direct debits, and PBB could simplify transactions for small businesses and local shops, eliminating minimum spend requirements and manual payment transfers.
The rise of Pay by Bank signals a transformative shift in the payments ecosystem.
While challenges remain, advancements in open banking technology, merchant adoption, and consumer incentives are paving the way for broader acceptance.
By prioritising security, collaboration and consumer education, Pay by Bank has the potential to become a major payment rail, driving efficiency and innovation across industries.
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