Why subscription businesses are switching from cards to Pay by Bank

The subscription economy is wide and diverse: SaaS platforms, streaming services, digital media, etc.

Do you know what they share? Involuntary churn – card expirations, payment limits, and payment accounts that get closed.

Studies show that failed payments have become one of the leading causes of subscription revenue leaks. Visa conducted a research and found that businesses spend up to 15% of the payment value trying to recover a failed payment. And even then, up to 15% of those initial failed payments permanently fail and turn into absolute bad debt.

The chargeback problems and high fees from the card payment network are just a cherry on top.

What can you do? Consider diversifying payment methods! Pay by Bank is an Open Banking-powered account-to-account (A2A) payment method. It can be a great alternative to card payments, especially where recurring account-based payment options are available.

The hidden costs of card payments for subscriptions

Involuntary churn and card payment failures

Cards usually expire every few years, depending on the issuer. Combined with other issues, such as payment limits, insufficient funds, closed accounts, or issuer declines, this can cause recurring card payments to fail.

For subscription businesses, this translates to involuntary churn, where customers are kicked out of their subscriptions without even meaning to leave. The impact is big. Every failed payment creates additional recovery costs, customer support interactions, and lost revenue opportunities. Even when businesses automate retry mechanisms, not all failed transactions can be recovered, and recovery comes at a cost.

Reducing involuntary churn has become a strategic priority for subscription-based companies seeking to maximize customer lifetime value and improve retention rates.

High card network fees are eating into margins

Card payments involve a complex ecosystem of acquiring banks, issuing banks, payment processors, and card networks. But the most important part is that each participant receives a portion of the transaction fee from your pocket.

For businesses operating on subscription models with thousands or millions of recurring payments, these costs accumulate quickly. Interchange fees, scheme fees, and processing fees can significantly reduce margins, particularly for lower-value subscription plans.

Account-to-account (A2A) payments are often cheaper than card payments, but the exact cost depends on the provider, country, payment rail, transaction volume, and pricing model. Meanwhile, card payments commonly include a percentage-based fee, sometimes with an additional fixed processing fee.

Each provider has its own prices, but for many high-volume recurring payment scenarios, Pay by Bank can be more cost-efficient than traditional card payments.

The chargeback threat

Another challenge associated with card payments is chargebacks. Let’s go with friendly fraud here, where customers dispute legitimate charges because they forgot about a subscription or do not recognize the billing descriptor on their statement.

They may have signed up for a free trial months before or forgotten about a service they no longer use. Without context, they assume the transaction is fraudulent. Or a company’s brand name differs from its banking name.

In fact, 25% of global consumers have blocked a payment they believed was fraudulent, and 29% have disputed a recurring payment for the same reason.

For Gen Z, this figure is even higher: 37% have disputed a charge or blocked a payment they believed was fraudulent.

Beyond lost revenue, chargebacks create administrative burdens, incur additional fees, and even pose a threat to the business. Not many payment providers are willing to work with businesses with a high chargeback ratio.

This so-called “friendly fraud” is common in the subscription world, and it has no direct equivalent in the card-network chargeback process when payments are made through direct bank-to-bank payment rails.

What is Pay by Bank for recurring payments?

Pay by Bank is a payment method that lets customers authorize payments directly from their bank account, without entering card details.

Simply put, a customer selects Pay by Bank, chooses their bank, confirms the payment in their banking app or online banking, and that’s it. The payment is authorized securely by the customer’s bank at checkout.

Enabled by Open Banking payments infrastructure, it creates a secure, consent-based connection between the customer’s bank and the payment provider, allowing the payment to be initiated directly from the customer’s account to the merchant.

Instead of typing a 16-digit card number, expiry date, and CVV, a customer selects their bank, authenticates via their banking app using biometrics or a PIN, and confirms the payment or mandate.

The transaction is then processed as an account-to-account (A2A) payment – no card network involved, and no card interchange or scheme fees.

For subscription payments specifically, this payment is convenient and fast for clients, especially where recurring account-based payment options are available.

On a technical level, with subscription payments, the customer may authorize a recurring payment mandate or consent that allows agreed payments to be collected within defined terms. Once established, billing can continue automatically without interruptions caused by card expiry or reissued card details.

4 reasons Pay by Bank is better for subscription models

Bank accounts don’t expire

One of the primary causes of card payment failures is credential disruption. Cards are regularly replaced due to expiration, loss, theft, fraud prevention measures, or account upgrades.

Bank accounts, by contrast, do not expire in the same way cards do, although customers can still close, switch, or change accounts.

Once the recurring payment mandate or consent is established, it is tied to the account itself, not a card number that will eventually be replaced. It can reduce one of the common sources of involuntary churn, creating a billing relationship that continues without interruption unless the customer actively cancels it, or the account, mandate, or payment conditions change.

Lower transaction costs

Account-to-account (A2A) payments bypass Visa and Mastercard networks entirely. Without interchange fees, network assessments, or card scheme charges, the cost of processing each subscription payment can be lower than card processing costs.

Card transaction costs can also vary because they may include interchange fees, scheme fees, processor fees, cross-border fees, and other pricing components.

For Pay by Bank, merchants may pay a flat per-transaction fee, a percentage-based fee, or another pricing model, depending on the provider and commercial agreement – an economic model that’s especially favorable for high-volume or low-value SaaS and membership billing.

The savings scale fast. For a business processing hundreds of thousands of monthly subscription payments, the gap between card and A2A processing costs can run into the five- or six-figure range annually, depending on transaction value, provider pricing, and volume.

For example, let’s say you are receiving 1 million transactions per month, and on average, your card fees are 2%. Let’s make payments flat at 50 euros for the sake of mathematics. In this case, you will pay 1 euro for every 50 euros, totaling 1 million euros in card fees per month, before comparing this against the cost of an A2A provider.

Real-time cash flow with instant settlements

Traditional card payments often settle within one to three business days, depending on the acquirer, payment processor, and merchant agreement. This lag complicates financial planning, particularly for businesses managing payroll or operational costs against incoming subscription revenue.

Pay by Bank can rely on modern rails such as SEPA Instant Transfers, where supported, and may deliver near-real-time or instant settlement – funds can arrive in the merchant’s account within seconds of the customer authorizing the payment. That real-time liquidity and visibility are a meaningful operational advantage, and they scale in value as the business and its subscriber base grow.

Unmatched security and no card chargebacks

Because the customer authenticates directly through their bank app using Strong Customer Authentication (SCA) – biometrics or a secure PIN – the identity verification in a bank-authorized payment can be highly secure and does not require the customer to share card details with the merchant.

Equally important: the card-network chargeback mechanism does not apply to account-to-account (A2A) payments. There is no card network to escalate a dispute through. This removes an entire category of financial risk for subscription merchants, although refunds, payment investigations, or other dispute routes may still exist depending on the payment method and local rules.

Eliminate involuntary churn with Genome’s instant bank payments

Since Pay by Bank methods are fully functional across the EU and often offer instant settlements, businesses can decide to switch or diversify their payment infrastructure.

Genome provides merchants with the ability to accept Open Banking payments seamlessly across Europe, leveraging SEPA Instant Transfers for immediate settlement directly into a Genome business account. If SEPA Instant is not available, SEPA Credit Transfers are used instead!

Our checkout flow was designed for minimal friction: customers select their bank, authenticate securely through their banking app, and the payment is routed directly to the merchant.

Beyond the payment itself, we designed a full merchant infrastructure together in one place: multi-currency business accounts, hosted payment pages, integrated Open Banking payments tools, and instant bank payments for seamless payment acceptance from customers.

Card payment processing is coming soon as well, giving you a full set of tools to accept payments the way you prefer. You will be able to accept payments from customers around the world who use Mastercard and Visa cards.

Conclusion

Cards were built for a different era of commerce – one defined by one-time transactions at physical points of sale. They are commonly not designed to support the modern subscription economy’s need for reliable, cost-effective, long-term recurring payments.

Pay by Bank and Open Banking payments are different. There is no chargeback due to a much safer model, transaction costs are structurally lower, and instant settlements improve your cash flow.

Ready to upgrade your subscription checkout? Explore Genome’s instant bank payments solution.