Pay by Bank: A Beginner's Guide

We’ve all gotten pretty comfortable with online transactions. Over 268 million Americans transacted online in 2022. That’s over 80% of all Americans (including children). But there’s a downside to this ubiquity.?

US credit card processing fess are the highest in the world, not to mention the high cost of digital wallets; despite their best efforts, credit card fraud continues to rise.

While merchants and consumers are both incredibly comfortable with online transactions, both parties still assume they are going to be defrauded or scammed and then have to spend precious time and/or money fixing the issues..

But the landscape is changing and there is a new secure way to pay that keeps the ease and avoids the drawbacks.

Pay by bank is a new payment method that allows consumers to pay directly with their bank account. Cutting-edge businesses are implementing it to save on processing costs and conduct safer transactions, for themselves and for their customers.

How does pay by bank work?

Relying on the concept of open banking, pay by bank is the method by which a customer pays a merchant directly through their bank account. For consumers, it works like this:

1. The customer adds something to their cart and goes to the checkout page.
2. They select the pay by bank option and then sign into their banking app.
3. They then choose their bank account to validate the transaction.
4. Once it is accepted, a transfer is made directly from the customer’s checking account into the company’s bank account.

Eliminating fraud

Pay by bank experiences a lot less fraud than credit cards. U.S. losses from card fraud will total $165 billion over the next 10 years. Credit card fraud affects everyone, but it’s also incredibly easy. Cards can easily be dropped, copied, stolen, skimmed, phished, or subject to a BIN attack. When a customer is able to pay by bank account, consumers and merchants alike are protected by layers of security provided by the phone, the bank, and the pay by bank provider.?

Phones already have features to discourage theft like passcode and biometric login, and can even be wiped remotely if they go missing. Banks require at least a password, but often 2FA or biometric authentication as well. Pay by bank providers provide additional fraud checks to verify the transaction. It’s much harder for a scammer to crack this dense security system than to run a software algorithm that guesses your card number.

Will consumers really buy with their bank accounts?

Pay by bank can actually reduce friction for your customers. Fewer than 50% of consumers have a credit card number saved on a mobile payments app. That means the other 50% has to either physically get their card in order to read off the numbers, or they have the number committed to memory!?

Pay by bank relies on technology that the majority of Americans are already comfortable with; their mobile banking app. Customers can authenticate their transaction directly from their phone. The process is simple enough for anyone who regularly logs into their banking app. Other payment methods may require them to create an account, or pose additional challenges.?

Consumers are picky. Some will stop a purchase due to complicated checkout processes, or even avoid a retailer if they have to re-enter their credit card information. Thirty two percent of North Americans are already using A2A, Direct Debit, and bank transfer as their primary payment method online. Consumers are craving choice. Why make it hard for them when you can clear a path to easy transactions??

Cut the credit card fees

Businesses can pay 2.87% to 4.35% of each transaction for credit card processing. If your business processes $25 million via credit card per year, you’re paying upwards of $875,000 in credit card processing fees alone.?

That could easily make a huge impact to your business by increasing your ability to build, grow, and optimize, not to mention your profitability.?

Creating benefits to discourage your customers from swiping the card can really impact a business.?

A better payment method for big payments

Pay by bank responds to needs that were once fulfilled by a paper check: big transactions. But when it comes to high spending amounts, the card faces a big obstacle: credit limits. Credit limits represent an unnecessary limitation.?

No matter how much money a consumer actually has in their bank account, the average credit card limit is only $12,945, not to mention whatever balance they have on their card.?

If your business only accepts credit cards, and the customer doesn’t have a credit limit to support the transaction, they might just walk away and look for a merchant who can serve them. With pay by bank, your customers transfer money from their bank account as long as they have the cash available and no matter what their credit limit might be.?

Pay by bank are subject to ACH returns, however because the transaction is authenticated directly through their bank login, fraud and friendly fraud are reduced as well. Some pay by bank partners (like Link Money)? even guarantee funds further protecting you. Pay by bank still allows you to process refunds in a convenient way if necessary.

Conclusion

In the end, it's important to understand your customers and the moment of history we are living in. It can be hard to decide whether to try a new payment solution, but this simplified method combines all of the good things with credit cards, and gets rid of the bad: saving you and your customers time, reducing friction, saving on payment processing fees, and eliminating chargebacks.?

At Link Money, we provide low cost, fast and secure payments using this technology. Our integration is quick and easy, with some partners completing the integration in about a day. Link Money can reduce your payment processing fees by up to 70%.

We also partner with more than 3,400 banks in the U.S (covering ~95% of American checking accounts), so we'll make sure your customers can make an easy and safe payment, saving you a lot of money.?

Let us help you catch the new payment wave before you're behind! You can contact us anytime so we can help save your business a lot of money through pay by bank.