Payment Networks and Alternative Rails Pave the Path for Pay-by-Bank Adoption 

The Bard penned it best about payments, and specifically pay-by-bank:

“If it be not now, yet it will come: the readiness is all.”

In reality, those words were, and eternally will be, uttered by Hamlet.

They’re applicable to the state of pay-by-bank, as account-to-account transfers promise speed and security in improving fund flows. But while the promise may be there, the uptake has not kept pace, as has been documented by PYMNTS Intelligence. In the “Real-Time Payments Tracker® Series Report” we noted that real-time payments accounted for just 1.2% of the total spend in the U.S. 

Tackling the Speed Bumps

As faster payments gain notice and use, the stage can and will be set for A2A and Pay-by-Bank to gain share of wallet among consumers and enterprises. But there are some speed bumps still in place, because A2A payments don’t have some of the anti-fraud mechanisms that are seen in other payments modalities — and the payments themselves are irrevocable. Financial institutions (FIs) also have transaction limits in place, typically at $5,000 per day. PYMNTS Intelligence has also found that 35% of consumers consider A2A payments too slow.

In addressing those security concerns, Visa last month announced that it had invested in Form3 to help support the latter’s expansion, focusing on preventing fraud and increasing operational efficiency in real-time payments. Form3’s financial crime orchestration service is being used with Visa’s deep-learning artificial intelligence and real-time risk scoring to help FIs’ clients manage the risk of sending and receiving real-time A2A payments. 

Several firms are working on pay-by-bank infrastructure and channels to marry open banking — as consumers permission their data — and direct-account access, to help give tailwind to various services and offerings.

The key has been to bring pay-by-bank functionality to merchants through the payment networks and alternative rails. Acceptance is critical in prodding consumers to mull new ways to pay. For the merchant side of the equation, the incentive may be there to help reduce the cost of transactions as account-to-account transactions bypass interchange fees.

Acceptance of A2A has already been given some runway, given the fact that debit transactions are fairly universal.

Earlier this month, JPMorgan Chase went live with its Mastercard-powered Pay-by-Bank tool. Combining Mastercard’s open banking technology and J.P. Morgan Payments’ ACH capabilities enables merchants to offer customers the ability to pay directly from their bank accounts. Mastercard’s Smart Payment Decisioning Tools, as PYMNTS reported, analyze the best time to initiate the payments based on the bill payer’s transaction behavior and risk pattern and reduces the risks of returns due to insufficient funds. Verizon is among the early adopters of the JPMorgan/Mastercard tool.

FinTechs Nuvei and Plaid said earlier this year that they’d expanded their partnership to help companies accept bank-based payments, to be used in recurring transactions and payouts, and to serve new eCommerce verticals like utilities and B2B. Nuvei offers local acquiring in 47 markets, while Plaid’s network covers 12,000 financial institutions across the U.S., Canada, the U.K. and Europe.

As announced last month, BNY Mellon has teamed with payments company Trustly to launch Bankify, an open banking payments solution. The partnership lets BNY Mellon clients offer users the ability to make payments directly from their bank accounts instead of with credit or debit cards.