Pay by Bank enables direct bank-to-bank transfers without needing a credit or debit card by leveraging open banking APIs to facilitate fast transactions securely and effectively, streamlining the customer journey. In Brite Payment’s Instant Economy Payment Insights report, conducted with YouGov, survey results show Pay by Bank is becoming increasingly popular. A remarkable 73% of those surveyed in Finland, France, Germany, the Netherlands, Spain, and the UK were already familiar with the payment method, and 84% of Dutch respondents reported using Pay by Bank at least monthly, highlighting its growing demand.

Pay by Bank's ability to respond to consumer needs in real-time makes it particularly compelling. As we move further into a digital-first world, consumers expect their financial services to keep up with their fast-paced lives. Traditional payment methods, often delayed and slow, give way to instant solutions that fit seamlessly into our daily routines.

The rise of digital wallets and mobile banking apps has also accelerated the adoption of Pay by Bank payments. As consumers become more accustomed to managing their finances through smartphones, integrating Pay by Bank offers an attractive, frictionless alternative to card payments.

The ripple effects of pay by bank on the financial landscape

Legislative changes like PSD2 (and the upcoming PSD3) are revolutionising the banking industry by driving innovation and enhancing security. PSD2 laid the groundwork for open banking, allowing new players to enter the market and offer innovative financial services. Now, with PSD3 on the horizon, the push towards open banking is set to deepen, with Pay by Bank at the forefront of this change.

PSD2 is a regulation established by the European Union that outlines specific requirements for companies offering payment services. This directive impacts banks, building societies, payment institutions, e-money institutions, and their customers. PSD2 aims to foster innovation within the payment industry, enhance consumer protection, improve the security of transactions, and reduce the costs associated with payment services.

The real game-changer is how these legislative frameworks level the playing field. This shift is changing not only how banks operate but also how consumers and businesses interact with financial services. PSD3 is expected to further standardise open banking APIs across Europe, making it easier for FinTech’s to offer seamless Pay by Bank solutions across borders.

The implications of new payment methods are going to be profound. By reducing reliance on traditional card networks, Pay by Bank challenges the dominance of more well-known, established players. This disruption opens up new opportunities for innovation and offers consumers better, more cost-effective solutions. For businesses, particularly those operating in multiple European markets, offering a consistent payment experience across countries is a significant advantage.

Redefining the user experience

At the heart of the payment revolution is the focus on enhancing consumer experience. Today's consumers, especially the younger generation, advocate for convenience and seamlessness in every interaction, including financial transactions. The friction that often accompanies traditional payment methods, whether it's cumbersome card details or delays in processing, is no longer tolerated by a demographic that values speed above all. Data from Brite's Instant Economy Payment Insights report shows that 39% of Gen Z consumers place speed as their top priority when choosing a payment method.

Pay by Bank meets these expectations by offering a more streamlined payment experience. Unlike traditional card payments, which often require lengthy sign-ups and detailed credit card information, Pay by Bank leverages a consumer's existing bank credentials, making the process quicker and more convenient. This enhances the user experience and reduces transaction fees typically associated with card payments. Other benefits include faster access to funds, which means improved cash flow and greater insights to understand customer needs better and offer more relevant products and services.

At its core, the success of Pay by Bank is rooted in its ability to meet consumers who are looking for a payment method that is quick, easy, and fits effortlessly into their fast-paced lives.

Security is paramount

In today's increasingly digital world, where cyber threats are constantly evolving, security in financial transactions has never been more crucial. Traditional payment methods, particularly those involving card payments, are becoming progressively vulnerable to fraud. The European Payments Council reported that consumers in Europe lost over €600 million to card fraud in 2021 alone, underscoring the pressing need for more secure alternatives.

Pay by Bank directly addresses these concerns by eliminating the need for card data, which is often the primary target for fraudsters. By facilitating direct account-to-account transfers authenticated through multi-factor processes, Pay by Bank significantly reduces the risk of sensitive information being compromised. This makes it an attractive option for security-conscious consumers who want to ensure their financial transactions are as safe as possible.

Additionally, the inherent security advantages of instant payments extend beyond individual consumers. For merchants, reducing the reliance on card networks cuts costs and minimises the risk of chargebacks, a common issue associated with card fraud. The added layers of security offered by Pay by Bank, such as multi-factor authentication, further protect against fraudulent activities like card skimming.

Security isn't just a feature; it's a priority for consumers and businesses alike. Brite Payments’ Instant Economy Payment Insights report reveals that 52% of the UK consumers surveyed cited security as the primary reason for choosing Pay by Bank. The importance of security is further highlighted by research from Javelin Strategy, which found that 44% of fraud victims considered switching financial institutions after experiencing card fraud. This underscores the important role that secure payment methods play in maintaining customer trust and loyalty.

While seamlessness and user experience are vital, they must not compromise security. Pay by Bank's ability to offer both makes it a compelling choice for the future of digital payments.

Unlocking the future of payments

As we look to the future, the adoption of Pay by Bank is set to expand even further. For financial institutions, staying aligned with customer expectations will require reassessing current payment infrastructures and exploring partnerships with fintech providers. The rollout of PSD3 and its accompanying regulations will be critical in laying the groundwork for Pay by Bank to become a mainstream payment method globally.

To fully harness Pay by Bank's potential, financial institutions must prioritise innovation and collaboration. This means upgrading their infrastructure to support real-time payments and working closely with fintech to develop new use cases for Pay by Bank.

Countries with well-developed open banking infrastructures, like Germany and Sweden, are already leveraging these systems to offer enhanced security measures and near-instantaneous transactions. The potential for greater convenience, security, and innovation in digital payments is immense, and it's up to payment providers to harness these opportunities.

The global nature of Pay by Bank allows for cross-border payments to become more seamless. Currently, international transactions are often slow and expensive, relying on outdated systems. However, the integration of instant payments with global open banking standards could revolutionise cross-border payments, making them as fast and cost-effective as domestic transactions.

In conclusion, the rise of Pay by Bank signals a new era in the world of payments, one that promises to deliver faster, safer, and more cost-effective solutions for consumers and businesses. As we continue to innovate and adapt, this method will likely become the cornerstone of future financial transactions. Open banking has laid the foundation for a new era of digital payment solutions. Now, it’s up to payment providers to harness this opportunity and deliver on the promise of seamless and user-centric financial experiences.

By Lena Hackelöer, Founder & CEO of Brite Payments

This article originally appeared in the September/October 2024 issue of Startups Magazine. Click here to subscribe