Pay-by-bank capabilities – which let consumers seamlessly pay for things directly from their bank accounts – will be driven by merchant demand.
Letting consumers pay-by-bank reduces risk and costs for merchants. While banks may be wary of losing card revenue, supporting the feature could help them win business customers.
Businesses are excited by an open banking-powered experience called pay-by-bank because it nixes credit card swipe fees and reduces their risk of fraud or chargebacks.
“This is a product that merchants are asking for,” according to Brad Goodall, the CEO of Banked, a fintech platform that just raised a $15 million Series A from Insight Partners, Citi Ventures, and others.
Regulation has pushed the feature forward in Europe, but it’s still uncommon in the US. While the service reduces banks’ revenue from credit card swipe fees, it gives those that offer card or treasury services an edge over their competitors: “Merchants are putting it on their RFP list,” Goodall told Insights Distilled. “Even if you’re not thinking explicitly about the space, your customers are, so you should be out there.”
Although pay-by-bank offers perks to consumers (including ease, security, and the satisfaction of instant payments), Goodall believes that merchants will be the strongest drivers of adoption. To avoid swipe fees, they may offer consumers incentives to use pay-by-bank (like discounts or free digital goods), he predicts: “2023 will be the year of pay-by-bank.”
Banked has 90% bank coverage across the UK and Europe, and is expanding to the US, where it’s currently building out relationships with Bank of America and Citi. Meanwhile, JPMorgan and Mastercard just announced their own pay-by-bank pilot.
Banks can go the JPMorgan route and create their own end-user experience, or they can work with a provider like Banked, Goodall said: “Either you build the whole thing, end-to-end, or you leverage a partner with a global network.”