Account-to-account transactions, otherwise known as ‘pay by bank’, is a fast growing payment trend that leverages existing payment infrastructure and new open banking protocols to securely make a transaction. Thanks to its low fees and high security it's becoming a popular payment topic, but some pressing issues could come to light as the technology is tested at scale.

Pay by bank’s end goal is the same as any other payments network - to move funds from one bank account to another. Account to account transactions isn’t a new concept. It has been used across European countries for quite some time, notably in the Netherlands with the payment system iDeal and Giropay in Germany. Both systems have leveraged legacy interbank networks to define an easy way for the consumer to log into their ebanking to trigger the account to account payment.. 

Pay by bank’s key differentiating innovation is the near real-time nature of the transactions - the recipient receives their funds almost immediately, since no separate clearing is needed. 

Over the last few decades, customers have grown used to adopting new technologies to make payments. However, to ensure that pay by bank breaks into consumer’s payments wallets, banks must ensure that it brings value to the consumer, as well as to the merchant. The benefits for the merchant are clear - funds are received faster than with card payments, there are potentially lower fees and the risk of a pesky chargeback dispute is reduced dramatically.

However, pay by bank largely neglects the consumer’s interests. Statutes, such as the UK’s 1974 Consumer Credit Act, ensure that payment networks serving cards (namely Mastercard, Visa and American Express) protect consumer’s rights. The absence of a convenient and reliable disputes system, such as the chargeback process, is likely to hinder consumer adoption of pay by bank as a replacement of debit and credit cards. Card payment networks also run extensive fraud and chargeback programs tied into regulatory frameworks. These checks protect cardholders and hold merchants/issuers liable in cases of fraud, further building the case for cards. Open banking advocates argue that the closed system is inherently more resistant to fraud, providing consumers with fraud protection through the increased security of the overall system. Fraudsters, however, have never failed to target a payment method, and will challenge open banking based payments as they have every payment method before it.

Pay by bank also struggles at Point of Service terminals (POS). Even with the recent changes and improvements - such as “SEPA instant” in the EU - the underlying infrastructure is not yet capable of sub-second authorization decisions. This limitation results in significant waiting times at the POS, leading to consumers and merchants opting for payments via card networks.

Pay by bank payment methods will definitely have a place in our payments wallet, but it faces significant infrastructural and consumer protection hurdles. 

Replacing legacy bank transfer invoice payments should be a breeze for pay by bank, but challenging the payment network incumbents is still a way off.