Plaid Says Pay by Bank Is Nearing a Tipping Point as Consumers Form New ‘Habits’

Rahul Hampole, head of payments at Plaid, said pay by bank is gearing up for widespread adoption — but much depends on use cases that are offered, spanning pay-ins … and payouts.

He noted that there’s already a history of banks linking to various payment options — such as Venmo and Cash App — across digital channels.

Outside of the U.S., in “Europe, India and Asia, bank payments are growing like crazy.” Here in the States, ACH volumes have grown significantly, touching about $1 trillion in volumes.

And now, more recently, real-time payments have been pushed to the forefront more than ever, with the debut of the FedNow® Service in July.

For bank-linked payments to succeed, Hampole said, they need to be simple — as simple, as, say, swiping a card. But, he cautioned, pay-by-bank payments are not suitable for every use case. There’s no real reason for a consumer to walk into a retailer and pay by bank. But across other avenues of commerce, there needs to be merchant adoption.

“Merchants should feel it’s very easy to slot this in as part of their checkout flows or other experiences that they’re building,” he said. Merchants may feel more comfortable with card-not-present purchases — and, especially, higher-dollar transactions — being linked to customers’ accounts.

“You see lower fees,” he said, “which from a merchant’s perspective reduces operational costs.”

The insurance company that cuts thousands of checks and sends them in the mail no longer has to contend with those additional costs when it comes to disbursing claims payouts. Positive ripple effects accrue as call center volumes decline: Recipients no longer have to worry or wonder when payments will reach them.

Use Cases Gaining Traction

There are already use cases that are gaining momentum, such as bill payments and monthly rent payments. Account funding remains a key use case, too, as individuals move money between savings and investment holdings, and want to do it with speed and security.

Pay by bank, he said, has the potential to become a “fantastic, embedded experience … and it won’t feel like a heavy lift to pay through your bank account.” Providers, he said, will have to convince users that the payment experience is even better than card-based transactions, with a better user experience in the mix.

“Consumers are going to need to form habits around these payments,” he said. And in that case, there’s been a bit of carrot-and-stick approach from some enterprises. The carrots? They’ll offer discounts in the event that consumers opt to pay by bank. In other cases, the stick materializes when they opt to charge a premium on card-based payments.

Plaid, for its part, has seen its merchant customers and financial institution clients finding new demand — and anticipation of demand — for pay by bank. There’s burgeoning uptake in the gig worker economy, he said, where project-based payments have traditionally taken days to be sent out and settle.

“Gig workers don’t have a lot of float,” said Hampole, who added that “they don’t like waiting for their money every day — and so it’s nice for them to get that money instantly and to access those funds.” It’s a positive for the gig economy, to be sure — and helps broaden the ecosystem.

Looking ahead, he said, we’re in the same arc that saw card payments take flight decades ago.

“Businesses will be pushing more bank-linked payments,” he said, “where it makes sense for them from both a pricing and margin perspective — but also ease of use. In five or 10 years, you’re going to see habits form around these [pay-by-bank] situations … Consumers are open to it, as long as the ingredients are there, and the use cases will mushroom over time.”