Payment by bank account is a functionality that has existed for more than a decade in many countries. But it is still a relatively new phenomenon in the U.S.
Merchants love it because of the lower fees involved. Credit card networks hate it because it eats into their card volumes. U.S. consumers are ambivalent with some people, who loathe credit card debt, happy to use it while others want their credit card rewards.
Some fintech startups are tackling this problem as well as banks and established fintechs. Will it take off?
That remains to be seen. In today’s news, there are two stories with somewhat competing narratives on pay-by-bank. One says that cards are so entrenched at retail that pay-by-bank faces a tough road to broad adoption. The other says that merchants will drive adoption and while not suitable to all use cases, it is getting traction in bill and rent payments and will expand from there.
I think the way in is through digital wallets and tap-to-pay. If you are using a phone to pay, it is just as easy to use a bank account as it is to use a credit card. Merchants should share the cost savings with consumers to drive adoption.
Having said that, I don’t think 2024 is going to be the year of “pay-by-bank”. But I am bullish on pay-by-bank as a long-term trend.
Financial institutions have access to a vast amount of customer data, including account information, transaction history, and credit scores. However, much of that data is siloed by different payment platforms and networks and out of reach when fraud teams need it most. Banks can address this data drought problem by finding ways to modernize their tech stack, getting creative with existing rails, and leaning on providers to gain scale.
USA:Fintech group urges FDIC to renew innovation efforts Republican legislators and the American Fintech Council expressed worries recently over how the FDIC has managed its innovation efforts, highlighting the significant changes to an office established to head those efforts.
UK:UK fintech investment down 34% in 2023 Total UK fintech investment dropped to $12.3 billion in 2023, down 34% from $18.7 billion in 2022, according to KPMG’s Pulse of Fintech, a bi-annual report on fintech investment trends
Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.