Pay by Bank is an Open Banking-powered bank payment method. It allows customers to make an account-to-account payment without a debit or credit card. It means faster, smoother, and more secure payments.
This payment method is becoming increasingly popular in the UK and the European Union. The simplicity and security of this easy payment process have led to many businesses replacing cards with Pay by Bank among their main payment solutions.
What is Pay by Bank?
This payment method allows customers to pay a business directly by sending digital payments from their bank account to the merchant’s account. There is no need to use a debit or credit card, as open banking technology is used to send the money from the customer’s bank to the merchant.
It can provide near-instant payments and reduce fraudulent transactions by using open banking infrastructure and APIs. Strong Customer Authentication (SCA) is used to make this method highly secure. It helps significantly reduce fraud.
What is Pay by Bank method authentication, and how does it boost security? Multi-factor authentication by the customer’s bank may include a PIN, biometric authentication, or other bank credentials. It makes it more secure than many other payment methods. Customers just use the authentication they’ve set up on their bank account.
The direct nature of the real-time payment Pay by Bank offers is a key aspect. With no need for a credit or debit card and with no card scheme intermediaries involved in the payment flow, this is a smooth payment experience. For the merchant, the lack of a manual entry also makes it easier to process customer data.
The money can be transferred directly from their bank, often instantly when supported by instant payment schemes. The SEPA Instant Credit Transfer (SCT Inst) process is increasingly used, enabling real-time payments that operate 24/7 between participating banks. Unlike card payments, there is no standard card chargeback process, although refunds and returns can still be handled separately.
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How does Pay by Bank work?
“What is Pay by Bank and how it works” are the next questions we need to cover. To better understand how the Pay by Bank payment method works, we need to look at the step-by-step process of sending money from a customer account to the merchant.
Customer payment initiation
At the checkout, the customer chooses the Pay by Bank option from the list of alternative payment methods. In some cases, it might be listed as a bank transfer or open banking payment.
With merchants increasingly adopting Pay by Bank checkout options, it’s now a more common option alongside credit card payments and other traditional methods. With an integrated API, the customer clicks on the merchant site to get taken securely to their banking platform.
Authentication by the customer
The next step sees the customer authentication process carried out. It is where they enter their online banking credentials for strong authentication and robust security measures. It only takes a moment, but it is a vital element of the secure process.
It’s this process that ensures this is among the most secure payment methods. The authentication methods are those set up on the payer’s bank account to confirm financial transactions.
Payment is sent instantly
The instant bank transfer process is used to send the money directly from their bank account to the merchant. No sensitive data is included, and the payment experience is slick for the customer and merchant.
The merchant receives instant confirmation
The final step in the Pay by Bank process sees the merchant receive confirmation of the successful payment. With no debit cards involved, there is no need for the payment to go through the card network.
This simple account-to-account method makes it one of the safest payment options. In terms of fraud prevention, Pay by Bank lowers the risk of fraudulent transactions.
Pay by Bank vs. card payments
When comparing the different ways of making payments to merchants, the following are among the key points to bear in mind. The Pay by Bank vs card payment table below covers the main areas where differences apply.
Payment method feature | Pay by Bank | Card payments |
Cost of payment processing fees | Lower transaction fees | Higher debit and credit card fees |
Speed of payments | Instant transfer of funds. | It can be up to one to three days. |
Risk of fraud | Lower risk than credit card payments, due to strong authentication. | Higher risk of fraud using traditional card networks. |
Chargebacks | None can be made. | Yes. |
Information to be provided by the customer | Open banking login using existing authentication methods. No consumer data is handled by the merchant. | Card number, expiry date, name of cardholder, CCV. |
Ideal uses | One-off payments.Recurring payments and charges, like bill payments and subscription payments. | Consumer retail payments. |
Benefits of Pay by Bank for businesses
Bank-based payments like these are helpful for businesses. They receive payments directly from customer bank accounts with the following benefits.
Lower processing fees. Since the payment flow doesn’t involve the card networks, there are typically no card network fees. Pay by Bank simply sends the money between the financial institutions, with pricing set by the banks and providers involved.
Instant settlement improves cash flow. The customer’s bank pays the money directly to the merchant, and when instant payment schemes are supported, instant settlement improves cash flow. It makes it easier to manage cash flows into merchant bank accounts.
Reduced fraud & chargebacks. With bank-level authentication, these are secure online transactions with a reduced fraud risk compared to many credit card payments.
Higher acceptance rates. With bank-based payments, there is a reduced risk of card chargebacks and some types of rejections that often cause problems with card-based payments.
Frictionless checkout. By using open banking APIs and a one-click checkout process, conversion rates are boosted.
Pay by Bank is suitable for high-value or high-volume transactions to a merchant account.
Pay by Bank for merchants can be perfect for recurring payments. There are no issues with card expiry dates, meaning that recurring payments can be programmed in supported setups.
Benefits of Pay by Bank for customers
For customers, this bank’s pay option makes life easier in the following ways.
No card details are required as part of the payment process. It makes it a more secure method where your pre-chosen authentication measures are used.
A faster checkout flow. Customers are redirected to their banking app to complete the payment.
This payment method works 24/7.
Instant confirmation once the money moves between the bank accounts.
Fewer failed payments with less risk of being asked to try another method because of rejection.
Pay by Bank use cases
Pay by Bank can be used to simplify the payment process in a variety of different situations.
E-commerce checkout
This payment process is ideal for high-ticket items or for these sales with small margins.
SaaS & subscriptions
The major benefit of accepting subscriptions and bill payments using Pay by Bank is that card expiry isn’t an issue. It can mean less risk of failed monthly payments.
Marketplaces
By accepting this method on marketplaces, instant payouts can be made to sellers or creators when combined with instant payout solutions.
Financial services, FX, trading, crypto
This payment process offers fast transfers with lower risk compared to many card-based payments. It’s ideal for a variety of financial services and trading platforms.
Utilities, insurance, telecom
Customers can pay invoices quickly and directly from their bank. The lower fees are also worth bearing in mind.
Pay by Bank vs instant bank payment
There are two different bank payment processes to consider here. However, we also need to take into account that they often work together.
Pay by Bank is the payment method the customer uses at the checkout stage.
Instant bank payment is the underlying payment process. It is often done using SEPA transfers over SEPA Instant.
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How Genome supports Pay by Bank solutions
We offer merchants an instant bank payments solution that lets customers pay via Pay by Bank directly from their bank accounts. At checkout, the customer selects Pay by Bank and is securely redirected to their banking app or online banking to authenticate using Strong Customer Authentication (SCA). Once approved, the payment is processed in real time and, when SEPA Instant is used, the funds are instantly transferred and settled to the merchant’s account. Both the merchant and the customer receive immediate confirmation of the transaction initiation and completion when the funds are settled.
Businesses receive dedicated Euro IBANs linked to a business account. It allows your business to send and receive payments across the Eurozone and beyond using dedicated business IBANs.
SEPA Credit and SEPA Instant Transfers’ support ensures that you can carry out transfers in the way that best suits you. Opening a multi-currency account with Genome makes life easier if you have clients and suppliers in different countries.
The fast onboarding process for EU businesses lets you start receiving funds and using a corporate virtual card right away. You also have the option of ordering a corporate physical card for use across the planet.
Low-cost cross-border payments enable your business to grow in different regions. With a focus on security and regulatory compliance, you can be sure that all relevant PSD2, know your customer (KYC), and anti-money laundering laws are met.
Our batch transfer process lets businesses send multiple transfers without any fuss. Genome is an Electronic Money Institution (EMI) that provides API support for our range of API-driven services, such as Pay by Bank.
