Pay by Bank: How will it evolve in 2024?

2023 saw an increased demand for alternative payment options to credit cards.

Pay by Bank: How will it evolve in 2024?

Consumers, who are burdened with unprecedented levels of credit card debt, are seeking ways to take better control of their financial health.

Merchants, on the other hand, have had it with rising credit card processing fees.

In addition, the payments industry is grappling with increases in  credit card fraud and seeking new ways to keep consumers and merchants’ safe.

Despite the availability of varied alternate payment methods – from BNPL to wallets – 2023 highlighted Pay by Bank as a key solution to solving these challenges.

We chatted to Shaun Vanderkaap, VP of strategy at Link Money to get his insights.

How will Pay by Bank evolve in 2024?

While adoption of Pay by Bank has been slower in the US as compared to other nations, 2023 served as a pivotal year for the technology.

In fact, the Consumer Financial Protection Bureau recently announced a rule that will accelerate the shift to open banking through regulatory requirements that will be finalized in 2024.

The rule aims to increase adoption rates, safeguard financial privacy and eliminate current barriers that are preventing merchants from going “all in” on the technology.

In addition, high-profile companies including Uber, Verizon and J.P. Morgan have all announced their adoption of Pay by Bank this year.

As this method continues to make its way to the forefront, consumer and merchant sentiment toward the technology will inevitably shift, as well.

What challenges will Pay by Bank likely face in 2024? 

One of the greatest challenges facing Pay by Bank continues to be our collective entrenched reliance on credit cards.

Consumers and merchants alike are accustomed to using credit cards, and like any other substantial change, there is bound to be resistance.

The US depends on private-sector advancements for technology adoption.

Unlike the EU and other nations, adoption of open banking methods in the US will depend on new players, innovators and increased competition – something that will not happen overnight.

The challenge here is also on Pay by Bank providers to make their product as seamless, frictionless and easy to use as credit cards, and for merchants to potentially offer loyalty programs similar to credit card rewards.

What will increased Pay by Bank adoption mean for consumers & Merchants? 

Increased Pay by Bank adoption will decrease merchants’ expenses by up to 70 percent.

At up to three-and-a-half percent, the US has the highest credit card processing fees in the world, and they’re only increasing.

There was a clear shift in 2023 that illustrates how fed up merchants are with these astronomical fees.

Many have been seeking alternative routes – like offering discounts for cash payments – which is simply not sustainable.

For consumers, increased adoption of Pay by Bank will enable them to gain a more holistic look at their finances and take steps toward avoiding debt.

Pay by Bank allows you to only spend what you have in your bank account, eliminating the temptation to borrow money you don’t have for non-necessities.

If the CCCA goes through, what will it mean for consumers & Merchants? 

The chance of CCCA passing remains fairly low because of the intense lobbying by the large card networks.

However, its purpose is to increase competition through requiring big banks to offer merchants a choice of which networks they select for credit card processing.

Right now, Visa and Mastercard are the dominant players. They just raised their processing fees even more, a hike that could cost merchants more than $500 million annually.

If the CCCA  were to go through, it would help to reduce processing fees for merchants.

What industries will be most likely to adopt Pay by Bank in 2024? 

Pay by Bank is ideal in industries where repeat purchases are common – preferably with transaction amounts above $10 to $15 each.

For instance, subscription-based services like Netflix or Spotify; parking spaces; storage units; insurance providers; and charities or government entities where regular payments occur.