Pay by Bank: What is it and how does it work?

Pay by Bank is an account-to-account payment method that uses open banking infrastructure to let consumers make an instant transfer of funds from their online banking app to a business.

Retail, digital subscriptions, and online travel businesses can integrate Pay by Bank into their existing web checkout to provide a smooth payment experience.

Payments are deducted directly from the shopper's available balance, offering financial clarity for both parties.

Pay by Bank uses open banking regulations and secure application programming interfaces (APIs) to connect the consumer's bank account directly with the business’s bank account.

Here’s a step-by-step process of how Pay by Bank works:

1. Selection: The shopper chooses the Pay by Bank option at the digital checkout of the business’s website.

2. Bank selection: The payment gateway presents a list of available financial institutions, and the consumer selects their preferred bank.

3. Redirection: The system securely redirects the consumer to their own mobile banking application or online banking portal.

4. Authentication: The shopper authenticates the request using their established biometric data or multi-factor security credentials.

5. Authorization: The consumer reviews the pre-populated transaction amount and clicks to confirm the real-time fund transfer.

6. Confirmation: The open banking network completes the account-to-account transfer and instantly notifies both the business and consumers of the successful transaction.

The benefits of Pay by Bank include:

Reduced cart abandonment

With Pay by Bank, consumers don’t need to enter long card numbers, expiration dates, or security codes, which can reduce cart abandonment rates.

Lower payment costs

Every credit card transaction involves a complex chain of stakeholders, including the issuing bank, the acquiring bank, and the card schemes. 

This network relies heavily on interchange fees to function, which directly affect business profit margins. 

Because an account-to-account framework cuts out these intermediaries, businesses can enjoy savings, aligning with an overall strategy to reduce payment costs.

Reduced card fraud

Credit card payments are often more susceptible to fraud. This is because verification relies more on the card being present than verifying the cardholder.

Since account-to-account transactions require direct customer biometric or multi-factor authentication inside a bank app, the identity of the user is strictly verified, reducing the risk of fraud.

Increased conversion for large ticket items

Pay by Bank is particularly beneficial for industries with a high average transaction value (ATV), such as travel and large-scale ecommerce. 

High-value transactions often trigger card network fraud flags or hit strict credit limits, leading to unnecessary declines. 

With an open banking connection, consumers can transfer larger sums with ease, opening new revenue streams.

With Adyen, you can offer Pay by Bank alongside international credit cards and local payment methods through a single platform.

This means you can offer direct banking payments across various markets without needing to manage separate technical integrations or individual banking partnerships. 

Our platform aggregates open banking connections, optimizing your settlement windows and consolidating all transaction data into a unified reporting ecosystem. 

To reduce your processing fees and strengthen your checkout security, get in touch with our team today.

• Pay by Bank connects a merchant directly to a shopper's bank account via open banking APIs.

• This method effectively removes card networks, reducing merchant service fees.

• High-security biometric authentication inside the banking app removes chargeback fraud risk.

• This solution accommodates large transaction amounts that would normally trigger credit card spending limits.