Pay by Bank has quickly become a hot topic in the payments industry, and for good reason. It’s a growing capability that merchants and fintechs are eager to expand and one that younger consumers are increasingly open to.
Pay by Bank Defined
Pay by Bank (PBB) refers to a direct payment from a consumer’s bank account to a business for their goods or services without the use of a credit or debit card. Currently, these payments typically leverage the ACH network but are expanding to instant payment rails such as FedNow and RTP. The first real form of PBB was developed years ago in the bill payment space, where consumers could make payments directly to their utility company by entering their bank account info. Today, most PBB purchases are made in the e-commerce space; however, new partnerships are emerging that could drive acceptance and usage to the physical point of sale.
Drivers of Demand
Merchants have longed for solutions to accept non-card-based electronic payments at the point of sale. Why? Primarily due to the perceived lower cost of acceptance. In addition, with ACH or instant payments, merchants have less risk of taking losses because transactions are practically irrevocable, with PBB leaving the consumer or their financial institution on the hook in most cases. As a result, the payments industry is likely to see further PBB adoption in lower-risk merchant spending categories such as doctors’ offices, auto, insurance, and other loan payments.
Fintech Payment Service Providers (PSPs) such as PayPal, Square, and Stripe are offering PBB solutions to merchants as another source of revenue while leveraging the platforms they already have. Since many consumers already have their bank checking account information stored with one or more PSPs, the build-out is minimized for the fintechs. Further, open banking technology is driving a more frictionless experience, allowing consumers to offer permissioned sharing and storage of personal bank data with and through fintechs. While open banking is not yet required by regulation in the U.S., more financial institutions are leveraging the API technology for use cases such as new account funding.
Consumers are starting to take a liking to PBB for a variety of reasons, including perceived security, speed, and merchant enticements like rebates and discounts. It’s long been known that consumers often perceive payments through fintechs such as PayPal as more secure since they don’t need to share their card or bank details with each merchant. But when you combine that with promotions or discounts for PBB, it’s easy to see the allure. In fact, a 2024 payments study revealed that 81% of consumers are interested in PPB when accompanied by incentives.
Emerging Use Cases
Aside from the more commonly known bill payment use cases leveraging the ACH network to pay for utilities and subscriptions, new scenarios are being developed by well-known merchants and fintechs.
Walmart, which has been offering PBB via the ACH network and its Walmart Pay app for some time, announced a partnership with Fiserv to offer PBB leveraging instant payments like The Clearing House’s RTP network and the Federal Reserve’s FedNow Service. Walmart will get the benefit of near real-time settlement and believes consumers will find it more transparent and easier to budget their day-to-day finances, thus avoiding potential overdraft fees. The Walmart instant funds PBB capability is set to launch in the next year.
Jet Blue has partnered with Venmo to accept payments through the wallet app, which offers a PBB method via ACH. Consumers, particularly younger generations, tend to store their checking account information in Venmo for use in peer-to-peer payments, and Jet Blue is hoping to attract that younger clientele to its airline by accepting the wallet as a form of payment. Jet Blue currently allows payments for flights via Venmo on their website and in-app but could consider accepting the payment type for in-flight purchases in the future.
Barriers to Adoption
As with any new payment method, there are always barriers to adoption, whether on the merchant or consumer side. With PBB, the biggest barrier to adoption could be the channel – the physical point of sale. With most POS terminals set up for card or digital wallets, it may take a while for those same terminals to be capable of accepting PBB. Remember how big a lift it was for merchants to upgrade their terminals to accept EMV chips? Well, that same barrier to adoption could be seen here. While trade groups such as the Faster Payments Council are facilitating working groups to solve this POS challenge by leveraging QR codes, it’s not well understood whether the consumer will need to obtain new apps on their mobile device or share their routing and account number credentials, the latter of which would be a formidable obstacle to overcome.
In addition, those merchants who want to leapfrog ACH and move right to instant funds will have to think about how to accept RTP and FedNow push payments. Instant funds work off “push” payments alone, which may mean the consumer may need to receive a “request for payment” from the merchant to push the correct dollar amount in exchange for goods and services.
The fintechs offering open banking API technologies to support PBB just took a blow from JPMorgan Chase. The company announced it plans to implement fees for accessing customer bank account data, issuing pricing schedules to data aggregators such as MX and Plaid. These aggregators (and PayPal) currently access the information at no charge. While it’s unclear which U.S. financial institutions might follow, the seemingly lower-cost PBB payments might have just gotten more expensive.
Lastly, never underestimate the power of payment preference. Consumers are creatures of habit, and inertia will undoubtedly play a role when it comes to changing their hearts and minds. A great example is the challenge financial institutions have faced when attempting to get consumers to switch from debit cards to credit cards. In addition, savvy consumers will want a seamless experience and to understand whether PBB offers the same purchase protections and other benefits as cards do today – and right now, that’s not the case.
Implications for Financial Institutions
A shift away from cards has been at the forefront of concern for most financial institutions for some time now. The biggest implication of PBB is the erosion of a critical revenue stream – debit and credit card interchange. Along with a hit on revenue, a reduction in customer stickiness may also result. Should loyalty credit card users shift to PBB, issuing financial institutions could lose a primary form of engagement with consumers, putting them at a higher risk of attrition. A 2022 Financial Times article covered a story of JPMorgan Chase CEO Jamie Dimon, trying to get ahead of these concerns, encouraging his executives to research and build out the PPB capability – hedging their bets and hoping PBB could “replace at least some of those threatened revenues.”
In addition, banks and credit unions will need to fully understand the risks associated with customer fraud and non-fraud claims handling and budgeting. With no way to charge merchants back for any claims, financial institutions will need to consider their regulatory obligations and potentially develop new mechanisms to manage fraud risk. If a financial institution doesn’t cover the consumer’s claim, ask what the risk might be of losing the customer relationship.
The Bottom Line
While Pay by Bank is still in its early stages in the U.S., its potential to disrupt the traditional card payment value chain is clear. We’re likely to see further adoption as more merchants integrate this new payment method, especially leveraging use cases such as e-commerce and developing fintech partnerships. Financial institutions will want to consider how growth in PPB will impact their card product revenue streams and value propositions while also assessing how to manage new types of fraud and non-fraud claims. In addition, as PBB gains traction with U.S. shoppers, many consumers will move their primary bank accounts to those financial institutions accommodating the payment method with minimal friction, which will require open banking technologies.
To learn more about Pay by Bank (PBB) and other payments strategies, feel free to contact Leanne Lange to start a conversation.
Leanne Lange on August 7, 2025 9:30:00 AM
