Within an open banking environment, advances like pay by bank are transforming money movement.
At its core, pay by bank allows consumers to make payments directly from their bank accounts, bypassing traditional intermediaries such as credit card networks, Trustly Chief Revenue Officer Frederick Crosby told PYMNTS. The process could transform the payment landscape by reducing friction for consumers and merchants.
“Introducing open banking payments removes the friction that exists in a very card-heavy world online and allows people to cut through all the middlemen and use their bank to make payments,” Crosby said.
This direct payment method uses the open-banking framework, where consumers can authorize third-party providers to access their bank information securely.
However, while the conversation — and convenience — around open banking in the United States has evolved over the past few years, driven by both technological advancements and regulatory developments, the path toward widespread adoption has not been straightforward.
For consumers, pay by bank offers a more streamlined payment process, eliminating the need to manage multiple payment methods such as credit cards or digital wallets. It provides a direct link from their financial accounts to the merchants they trust, ensuring transactions are both secure and straightforward.
On the other side of the equation, Crosby explained that merchants benefit from lower transaction costs, as they avoid the fees typically associated with credit card payments. In an increasingly competitive market, where margins are often thin, this fee reduction can be a game-changer.
As with any new technology, the adoption of pay by bank will likely follow a gradual path, beginning with specific use cases where the benefits are most evident. Crosby highlighted subscription services as a prime example. For recurring payments — such as utilities, media subscriptions or government services — pay by bank offers a “set it and forget it” solution that simplifies the consumer experience and reduces costs for merchants.
“Cards allow commerce to happen that never could happen before,” Crosby said. “And to do that, they put this interchange rate, this 2% to 3% tax to protect people from fraud … But do you always need that beyond the first transaction? No, particularly when it comes to subscriptions … We see these repeat use cases as the perfect spot for open banking payments, whether it’s utilities, media services, even things like taxes.”
Unlike credit cards, which can expire or get misplaced, bank account details remain consistent, providing a more reliable method for ongoing payments. This reliability is particularly valuable in scenarios where interruptions in service due to payment issues can lead to customer dissatisfaction. By adopting open banking payments, consumers can avoid the hassle of updating payment information, and merchants can reduce the administrative burden associated with managing failed transactions.
As consumers become more comfortable with this payment method, Crosby said he anticipates its expansion into other sectors, such as retail, where the appeal lies in the potential cost savings for merchants who operate on thin margins and are eager to reduce their reliance on credit card networks. For retailers with established customer accounts or loyalty programs, integrating pay by bank could provide a seamless and cost-effective payment option.
Crosby pointed out that unlike across Europe, the success of open banking payments in the U.S. will depend on consumer comfort with sharing their financial data and their trust in the security of these transactions. While younger generations, such as millennials and Generation Z, have shown a greater willingness to adopt open banking solutions, there is still a portion of the population that may need more reassurance before fully embracing the technology.
The regulatory environment in the U.S. is also evolving to support open banking, with the Consumer Financial Protection Bureau (CFPB) playing a role. As Crosby explained, the CFPB is working on standardizing the rules for open banking, which is critical for the widespread adoption of pay by bank.
Ensuring that open banking solutions are secure, user-friendly and aligned with consumer expectations will be key to achieving broader adoption, he added. If these hurdles can be overcome, the U.S. could see a shift in how payments are made, with pay by bank emerging as a viable alternative to traditional payment methods.
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