In what situations has Pay-by-Bank been utilized?
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Pay-by-Bank transactions are becoming increasingly popular in modern commerce, offering a secure and efficient way to make payments directly from a consumer's bank account. According to a recent report titled "Pay-by-Bank: A Practical Guide for Merchants," published by North American PaymentInsights in December 2024, Pay-by-Bank is a growing alternative to traditional payment methods.
One-time bill payments and subscriptions account for 24% and 16% of Pay-by-Bank scenarios, respectively. ACH (Automated Clearing House) transfers are commonly used for these types of payments, offering cost efficiency for businesses managing subscription services or B2B payments. Although settlement is slower compared to card payments, the low transaction fees (around $0.20–$0.50 per transfer) make ACH transfers an attractive option. However, the report does not discuss the specific percentage distribution for other payment scenarios, such as recurring bill payments, eCommerce purchases, or in-store purchases.
Recurring bill payments, similar to subscriptions, benefit from ACH transfers for predictable billing with minimal fees. This makes this method a preferred choice for ongoing financial commitments where speed is less critical than cost efficiency.
In-store purchases account for 9% of Pay-by-Bank scenarios, while eCommerce purchases account for 6%. Some in-store scenarios can use payment links generated by businesses and shared digitally for contactless payments, but digital wallets like Apple Pay and Google Pay are more common for instant in-store transactions due to their quick tap-to-pay experiences.
Online shopping increasingly incorporates pay-by-bank options through open banking or pay-by-link methods. Open banking redirects customers securely to their bank’s app or login page for authentication, enabling real-time payments without entering card details, enhancing security and reducing friction at checkout. Pay-by-link allows merchants to send a secure payment link to customers via email or SMS, which is especially useful for remote payments, invoicing, and both one-time and recurring billing.
Pay-by-Bank does not rely on cards or third-party wallets, offering advantages for both merchants and customers. Service providers, freelancers, nonprofits, educational institutions, healthcare providers, real estate professionals, and other businesses use pay-by-bank or pay-by-link methods to efficiently collect payments without physical interactions or card processing.
The report outlines the core advantages, technical requirements, regulatory landscape, and potential obstacles of pay-by-bank. It aims to provide clear guidance and actionable insights to help merchants make informed decisions about adopting pay-by-bank. The report also discusses the complexities associated with pay-by-bank, equipping merchants with the knowledge necessary to confidently take steps toward adopting this emerging payment solution.
Finance managers may find employing Pay-by-Bank methods cost-effective, particularly when managing subscription services or B2B payments, as ACH transfers offer low transaction fees compared to other payment methods. Furthermore, educators and nonprofits can leverage pay-by-bank for efficient collection of contributions without the need for physical interactions or card processing.