Pay by Bank Emerges as an Alternative to Cards for Online Payments

Trust has always been central to payments, but it is changing as payments evolve.

Traditionally, trust resided in the network brand stamped on a physical payment card, and consumers trusted these networks to resolve disputes and protect them from fraud. Today, as payments go digital, security gets tokenized, and non-card-based payment mechanisms proliferate, consumer trust is increasingly placed in digital banking experiences, their authentication flows, and the clarity of recourse if something goes wrong.

At first glance, this may sound like another chapter in the long-running shift away from physical cards. But findings in the report the “Pay by Bank Deep Dive: Digital Bank Users Are Ready to Switch,” a collaboration between PYMNTS Intelligence and Trustly, show that the unexpected main character in this emerging story isn’t about card networks, but about digital banks.

Per the report, digital banks now account for 13.8% of primary bank relationships in the United States, a share comparable to local banks and approaching that of regional institutions. Their users skew younger, lower-income, and disproportionately millennial.

More importantly, these consumers surveyed were two to three times more likely than the broader population to prefer digital wallets across nearly every spending category, including bills and subscriptions.

This matters because wallets change where trust resides. The consumer no longer interacts directly with a payment rail. Instead, the wallet becomes the interface through which identity is verified, payment is authorized, and value is exchanged. The funding source, whether it’s a credit card, debit card, or bank account, becomes secondary.

Pay by Bank and the Disaggregation of Card Value

As digital bank consumers increasingly come to experience, and ultimately expect, payments as a combination of login, authorization and incentive, the default role of card networks may begin to erode. In their place, the report highlights how wallet providers and Pay by Bank systems are positioning themselves not just as payment alternatives, but as orchestrators of the payment moment itself.

According to the PYMNTS Intelligence report, digital bank users would shift up to 35% of their transactions to Pay by Bank if offered immediate discounts and buyer protection, with particularly high willingness in account-to-account transfers and bill payments. These are among the categories where cards offer the least differentiation and the highest costs to merchants.

The significance is structural. Card networks historically bundled authentication, consumer protection, rewards and acceptance into a single product. Pay by Bank disaggregates these functions. Authentication is handled by the bank. Authorization is explicit and immediate. Rewards and protections become modular features that can be layered on rather than inherent.

Read the report: Pay by Bank Deep Dive: Digital Bank Users Are Ready to Switch

Why Digital Banks Are Leaning In

Neobanks and digital-first financial institutions have long struggled with the economics of cards. Interchange revenue is meaningful, but margins are thin, competition is intense, and regulatory pressure in certain markets can cap upside. At the same time, digital banks typically have stronger app engagement and more frequent customer touchpoints than incumbents, making them well-positioned to introduce new payment flows.

Digital bank users already demonstrate comfort with tokenized, non-card-based payments. They routinely authorize transactions without seeing or sharing a card number.

And while only 12% of consumers currently view Pay by Bank as a substitute for debit cards, one of the more consistent findings in the PYMNTS data is that consumers across all bank types respond to the same incentives. Immediate cash benefits and buyer protection dominate payment choice. Security concerns, while present, are secondary and largely assumed.

Consumers, at the end of the day, are willing to change behavior when the benefit is concrete and immediate. This can provide advantages for wallet providers and platforms that can combine seamless UX with credible guarantees.

At PYMNTS Intelligence, we work with businesses to uncover insights that fuel intelligent, data-driven discussions on changing customer expectations, a more connected economy and the strategic shifts necessary to achieve outcomes. With rigorous research methodologies and unwavering commitment to objective quality, we offer trusted data to grow your business. As our partner, you’ll have access to our diverse team of PhDs, researchers, data analysts, number crunchers, subject matter veterans and editorial experts.