Open Banking
Open Banking
November 29, 2023
5 min

Pay By Bank vs Card: Cost Savings

Timothy Shin

Open Banking Expert

Cards are one of the most commonly used forms of payment worldwide. In fact, unlike many other parts of the world, the US has a strong overreliance on card usage for both in-store and online purchases. This dominance is attributed to the unparalleled convenience offered by credit cards compared to other alternative payment methods. 

However, this convenience comes at a cost to merchants, as they are often required to accept card payments, which carry high interchange or processing fees. In contrast, merchants have the option to accept alternative non-card payment methods that are equally convenient for customers, without incurring these fees.

The High Cost of Card Acceptance 

Interchange fees often range from 1.5% to 3.5% per transaction. While this may seem “small” to the average person, most merchants know that these rates are a significant expense they have to account for, and these fees quickly add up over time. 

To make matters worse, card acceptance costs have steadily increased year after year, with both Visa and Mastercard setting the stage to raise prices yet again. The unfortunate reality is that many consumers use cards, so merchants have little say when the card processing networks decide to raise these fees arbitrarily.

So what can merchants do? Many merchants are starting to pass these fees to the consumer to maintain their already thin margins. In fact, the average household pays roughly $1,000 in swipe fees passed down to them from the merchant. While merchants don’t want to pass down these fees to consumers, they have little way to combat the card networks, and many have accepted the fees as a cost to doing business. 

Avoid Interchange Altogether with Pay By Bank Alternatives

It’s stated that in 2022 alone, merchants collectively paid $93.2 billion in card processing fees. Despite making nearly $100 billion in fees, the card network duopoly is unlikely to cap their swipe fees and will inevitably make another push for higher rates. This hurts merchants and will eventually trickle down to the consumers, making it harder to do business effectively and eroding consumer satisfaction.

Fortunately, there is a viable and easy-to-use solution that allows merchants to let consumers Pay By Bank. Pay By Bank is the cashless payment alternative that removes card processing networks from the factor and instead utilizes Open Banking APIs to directly connect merchants with consumer bank accounts. By adopting Open Banking and leveraging its benefits, Pay By Bank becomes a powerful challenger that can break up the hold interchange fees have on doing business and accepting payments. 

When powered through Open Banking, Pay By Bank is simple to do: 

  • At checkout, consumers connect to their bank accounts using Open Banking APIs. 
  • They log in securely with their bank account username and password.
  • They authorize their payment for goods or services from the merchants. 

It’s as simple as that. There’s no need for manual entry like in card-not-present transactions and no need to dig up bank account numbers or routing numbers. Everything happens in real time and is fast, easy, and frictionless to set up. Best of all, consumers don’t use cards when they Pay By Bank, so there are no swipe fees to pay for or pass down. 

Don’t Let Rising Swipe Fees Bring Your Business Down 

Swipe fees are a nuisance for any merchant, and even the government has gotten involved in regulating them with the Credit Card Competition Act. While there may be impending legislation to help increase competition in the card networks and reduce interchange rates, you don’t have to wait for regulation to come to fruition just for a solution. 

Pay By Bank is already here to help merchants stop paying card processing fees, increase their approval rates, reduce fraud, and much more. As we continue this Pay By Bank blog series, merchants will find more and more reasons to implement our payment solutions to increase consumer loyalty, improve consumer experience, and remove the high cost of accepting payments online.

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