Time Will Tell on How Soon Pay by Bank Goes Mainstream

Open banking, the ability for third-party developers to access financial data in traditional banking systems, as defined by Stripe Inc., may provide one component for a new payment type, at least one that has limited use today.

Pay by bank, a payment method that enables an online payment without the need for a credit or debit card, could be part of the ongoing evolution of the U.S. payments arena. At least that’s the suggestion from some speakers at Transact 2024, the Electronic Transactions Association’s annual conference in Las Vegas this week.

The combination of open banking with expectations for faster payments by consumers and merchants may produce conditions for pay by bank. Though guarantees this will happen are nonexistent, it’s a prospect the payments industry is preparing for. Witness Fiserv Inc. taking initial steps to prepare for this prospect by developing the infrastructure and uses cases for potential further adoption. And FIS Inc. said it is working with Banker, an open-banking provider, to develop new pay-by-bank services. And Mastercard Inc. is investing in pay-by-bank services.

Among the chief issues is educating consumers about the trust and security elements that come with establishing open-banking connections.

“When you connect your bank account, it starts with consumer education,” Utkarsh Agarwal, head of product for global pay by bank and business-to-consumer payments at JPMorgan Chase & Co., told the ETA attendees. Conveying exactly which data is being shared and for how long is crucial to consumers. The question is, if that access is granted, how does the bank control the data being shared, he says.

Currently, some consumers already employ open banking, though they may not know the term, to enable a conventional pay-by-bank transaction, such as for bill pay or to fund an account. Couple that with the faster-payments phenomenon, and more elements for pay by bank could emerge.

“Globally, there’s a rise of real-time payments,” Agarwal said. “There’s a perfect storm brewing in terms of enablement.”

Already there is consumer interest in using pay by bank, especially in bill pay and account funding, Tamara Romanek, Plaid head of partnerships, said in another session. “Plaid was started to help with account funding,” Romanek said. “Adoption of it is probably a year faster than we thought.”

And at Bank of America Corp., Ginger Bergman, senior vice president of risk strategy and payment compliance, said consumer demand for peer-to-peer transfers is where she sees the pay-by-bank growth coming from, along with growth in bill-payment use cases.

While some established pay-by-bank use cases exist now, there’s much unknown about how the payment method could develop. Banks, merchants, and consumers—the usual trifecta of payments participants—will have to agree pay by bank has other use cases ripe for much broader adoption.

“We’re a good five to seven years out before this becomes mainstream,” Bergman said. “It takes all players working together.”