Pay-by-Bank Rewards Programs Can Build Stronger Consumer-Merchant Bonds

Driven as they are by payment choice, many consumers like the idea of account-to-account (A2A) transfers, known by several other names including pay by bank — but what’s missing is a rewards component that stands to drive greater adoption of this payment method.

For their part, consumers like A2A payments — and brands are responding, as evidenced by May announcements that both Uber and Airbnb are now offering pay-by-bank options.

Because A2A payments use ACH rails, they avoid credit card interchange fees, so merchants are also supportive of the method. However, those fees are what fund credit card reward programs for large issuers, so rewards programs around A2A payments need to be created with another structure.

“I’ve been in the payment space for decades, and there’s never been a day whereby there hasn’t been frustration over the cost of acceptance and ever-increasing network fees broadly. With that saving [of interchange and network fees] comes the opportunity to reward,” Keith Olson, vice president of ACH and Online Banking at Nuvei, told PYMNTS.

Growing numbers of consumers using A2A as a payment method would like to see this option added. According to the study “New Payment Options: Building Stronger Customer Ties With Pay-By-Bank Transfer,” a PYMNTS and Nuvei collaboration, 52% of bridge millennials and 50% of millennials said they would be very likely to use online bank transfers to earn rewards, and 45% of those surveyed are most interested in cash-back rewards from A2A use.

Olson said, “I think for many of us who are old enough to have seen the evolution of credit card rewards, originally airlines and all the way to cash back and everything in between, it’s valuable, and many of us use that for as many purchases as we can achieve in order to get rewards.”

The roadblocks to A2A rewards hark back to the Durbin Amendment and the fact that debit cards don’t come with rewards programs. Rather, Olson sees A2A as an opportunity for merchants to build on their connection with consumers directly by controlling rewards.

“There really aren’t any rewards on debit anymore post-Durbin,” he said.

“The opportunity lies with eliminating the cost of the network expense, incenting consumers to utilize the account-to-account or direct bank transfer tender type and achieve that same alignment with your consumer without having a bank intermediary step in as the one that’s delivering the value through the reward.”

Funding A2A Rewards

Going forward, it’s merchants and banks that need to create the framework for A2A rewards programs — and while still nascent, there is demand. What’s needed is a new model.

“The massive opportunity is to introduce a reward similar to what debit card rewards produced to consumers prior to Durbin,” Olson said. “We can do it with account-to-account and fund that and enrich the experience for both the consumer and the attachment that that consumer has with any given merchant or operator.”

Without credit card issuers collecting the fees that fund rewards programs, banks and merchants need to do the math on the cost savings that methods like A2A payments bring, then build out a reward offering from there.

“The delta in cost and what’s available to incent is relatively simple, as long as somebody has a good handle on what their payment network expense is, if there’s pass-through expense or the reporting to understand that expense,” Olson explained. “Then when you implement and all that expense disappears from your statement and your cost, it’s innate. So, evaluating what’s available to share is sort of a finance and treasury exercise, coupled with marketing.”

Momentum Builds

Though it represents a major opportunity to reward the growing usage of A2A transfers and the benefits this payment method offers for consumers and merchants, it’s going to be a process.

Olson said there’s old wisdom at work behind the idea of A2A rewards dictating that the benefits of change must begin to outweigh the challenges before anything gets done. He thinks this is starting to happen as consumers use A2A more. That’s beneficial to merchants, so they will have to take the lead on innovation.

“The delta in expense, I believe, supports the turning point to create the momentum by leveraging some of that reduction in payment processing expense from the same endpoint of the payor to drive to that tender,” he said, “and enrich the overall experience from what the consumer feels directly from the merchant, and how the merchant benefits from not only tighter alignment with the consumer, but reduced cost in facilitating that same sale.”

The good news is that in terms of technological change, A2A is just another button to be added at the checkout, so merchants needn’t have integration anxiety.

“You’re adding a new tender type, and you’re adding a button, if you will, that then triggers an API call, which enables the tender,” he said. “The technology stack enablement is not a burden. Similar to a new tender like buy now, pay later, there’s the reconciliation on the back end … but not overly burdensome whatsoever.”