Although we sometimes think about cashless payments as a product of the digital world, the truth is that cashless systems extend back much further than the advent of the microchip.
After all, gold coins or other forms of intrinsically valuable “commodity money” can be cumbersome to carry and a risk to keep on your person, so it has long been a focus of banking institutions to encourage cashless transactions. Early bills of exchange gave way to cheques and banknotes that would eventually become commonplace in the modern era. That said, it wasn’t until the digital revolution when banks were finally able to make a cashless society a real possibility.
While debit cards are now a staple of cashless transactions, Barclays, Bank of America, and Banked Ltd (among others) are pioneering a new form of cashless payments. Built on established Open Banking principles, this approach is called Pay by Bank Account (or Pay by Bank, for short), and it may change the way that consumers and sellers prefer to do business. But what exactly is Pay by Bank? How does it relate to Open Banking? And, perhaps most importantly, what are the benefits to be aware of?
What Is Pay by Bank?
Pay by Bank is a kind of cashless payment option that cuts out the middleman represented by the credit card company or other service providers. Instead, a Pay by Bank transfer directly connects two bank accounts (the consumer’s and the merchant’s), moving money instantly from one to another.
How Does Pay by Bank Compare to Open Banking?
Pay by Bank is the newest iteration built on the Open Banking concept. In Open Banking, financial institutions make their application programming interfaces (APIs) available to third-party institutions. This makes it possible for merchants and service providers to build their own applications and create new services allowing consumers to authorize payments directly from their accounts, securely and efficiently.
Open Banking gives consumers the freedom they crave. Rather than being forced to rely on proprietary resources from individual institutions, merchants and consumers can take greater control over how they do business.
Although Pay by Bank and Open Banking are not, strictly speaking, the same thing, they are closely connected; Pay by Bank payments rely on Open Banking solutions.
How Does Pay by Bank Work?
Pay by Bank creates a secure connection between your accounts and the accounts of your consumers. This makes it possible for you to facilitate secure payments for goods and services via the consumer’s mobile device. There is no need for anyone to enter payment details, log into multiple accounts, or remember complex passwords. The consumer needs only to login with their online bank credentials at the time of checkout to easily and securely finalize their purchase.
The process is a simple one. When making a payment through the merchant app, the consumer selects the 'Pay by Bank' option and then confirms validation using their login credentials. Once the payment is confirmed, the funds are available to the merchant. The amount is then moved from the individual’s account and transferred to the merchant’s account. Consumers never have to share their bank account number or other identifying details outside of the app.
What Are the Benefits of Pay by Bank?
Pay by bank offers many advantages over traditional debit card payments and other options. These benefits include the following:
Reduced need to store sensitive buyer data
Online account-to-account payments move money directly from one location to another without the need for receiving parties to collect or hold onto customer card data or excessive amounts of personal information. This not only reduces the data storage demands of the merchant; it also reduces the risk associated with mishandling customer information. Account-to-account payments through Pay by Bank ensure that sensitive information remains solely with the consumer, protecting them and the merchants they do business with.
Working within banking APIs via Open Banking solutions, establishing connections between consumer and merchant accounts is easy and intuitive. Consumers simply follow the on-screen instructions within the app using their login credentials through their banking platform. They are then instantly connected to the merchant’s treasury system. In most cases, the entire process takes seconds.
Reduction of processing fees
Regardless of what side of the transaction you’re on, when you work with cards (debit or credit) you have to accept that fees are a natural part of the process. But Pay by Bank doesn’t use the card networks. This means the high processing fees that have long been associated with card payments are a non-issue. Because Pay by Bank runs on ACH rails, , transaction fees are dramatically lower than those generally associated with card payments.
More direct processes
Any time you add a link to the chain, the process is going to slow down. Pay by Bank optimizes and simplifies the processes associated with digital payments. By transferring money directly between accounts, consumers and merchants can enjoy a faster conclusion, free from having to wait on time-consuming settlement and clearing processes.
Possibly the most significant benefit of using Pay by Bank is the increased security. As mentioned above, consumers can make digital payments without sharing sensitive personal details or bank account numbers. Instead, they leverage their bank’s established authentication network to confirm their identity and finalize their payments.
Open Banking Payments — Trustly’s Solution to Pay By Bank
Cashless payments have long been the preferred purchasing method for consumers and merchants alike. But while traditional digital payment options have created a world of convenience for both buyers and sellers, they’re not perfect solutions.
Trustly’s Open Banking solutions are taking Pay by Bank further. Built on the industry-defining, verified-ACH platform, our Open Banking Payments create a streamlined user experience for the consumers that keep you in business. Consumers can pay using information they already know, their online banking credentials, within the merchant app for a seamless checkout experience. There’s no need to leave the merchant app to download a separate payment app or start a new account. Increase your revenue with full customer authentication and higher payment approval rates. And through it, operate securely in the knowledge that with Trustly, you’ll never again have to worry about chargebacks — we guarantee every payment we approve.
Learn more about Open Banking Payments, and put the power back in the hands of your consumers.