State of play: Pay by Bank

Each month, Philip Benton, Principal Fintech Analyst at Omdia, explores a new topic and assesses the “state of play”, providing an analysis and understanding of the market landscape.

This is an area I’ve probably touched upon the most throughout my ‘state of play’ columns, including my first ever deep-dive in March 2021 when it was more commonly referred to as account-to-account (A2A) payments.

So, this month’s column is a first of sorts, as I revisit the state of play of Pay by Bank.

Build it and they will come (eventually)

As an analyst, when predicting future trends, we naturally get a lot of things wrong. But I’ve been confident for a while that Pay by Bank (PBB) adoption was a question of ‘when’, not ‘if’.

My payment predictions in 2021, 2022 and 2023

Pay by Bank, also referred to as A2A payments, has emerged as a credible contender to card-based payments. PBB utilises banking rails and thereby reduces the processing fees for merchants (compared to a card transaction) while enhancing payment efficiencies for the bank through real-time settlement.

Although bank transfers are already common in some countries for online transactions, they aren’t ubiquitous as a payment method in the same way card transactions currently are.

Historically, PBB has struggled to achieve mass adoption by consumers due to an inconsistent user experience. The user experience varies significantly depending on the bank, merchant and open banking provider. For example, the APImetrics report on UK open banking API performance in 2022–23 found there was a six-times difference in total latency between the fastest and slowest banks, which is a big barrier for universal adoption.

However, in recent times, APIs have improved significantly after banks acknowledged that there is nothing to gain from providing the base level of quality to satisfy regulators and embraced the commercial opportunities by ensuring high-quality open banking APIs are available.

Pay by Bank arrives at the checkout

Pay by Bank has found a surprising early use case in e-commerce. It is surprising in that the payment method currently lacks mainstream awareness and faces strong competition at the checkout, with traditional cards, digital wallets, and buy now, pay later (BNPL) all vying to be the go-to payment method of choice.

However, the growing adoption of open banking globally has laid the foundations for Pay by Bank to arrive at the point of sale. 37% of payment issuers/acquirers view “new payment services leveraging open banking APIs” as their top IT priority, according to Omdia’s IT Enterprise Insights 2025 Survey.

Merchants are also eager to adopt PBB because it enables them to reduce processing fees, which are significantly lower than for traditional card payments. More than 67% of respondents in Omdia’s survey agree that PBB will reduce payment acceptance costs. There have been some first movers in the market who are already accepting Pay by Bank at the checkout, including pub chain JD Wetherspoon, takeaway platform Just Eat, airline Ryanair and luxury fashion retailer Farfetch.

Source: Omdia’s IT Enterprise Insights 2025 Survey

Although merchants have been slow to adopt PBB in the near term, the longer-term impact is expected to be transformative for the retail payments landscape. At a global level, 66% of merchants hold the view that PBB will replace the use of payment cards over time. This is something of an open-ended view, but it is nevertheless significant. The potential for merchants to reduce card acceptance costs and, particularly, chargebacks in e-commerce certainly makes this an attractive proposition.

Consumer adoption of PBB must be driven by merchants

Despite the promising signs, there is still a long way to go before Pay by Bank can be considered ‘mainstream’. There was a famous piece of research led by UCL in the 2000s whereby they found it takes, on average, 66 days for a consumer to form a new habit, with payment behaviour one of the most difficult habits to change – hence the longevity of cash.

Incentives are key to adoption. For example, when Uber started accepting PBB earlier this year, it incentivised users 40% off future rides if they sign up to Link, the PBB experience enabled by Stripe.

I’ve long thought that supermarkets are primed to accept Pay by Bank. The likes of Tesco and Sainsbury’s already offer discounts to customers who are loyalty cardholders, why not go one step further and offer additional loyalty points to those that opt for PBB? It could even eliminate the need for checkouts if customers also utilise mobile scanning technology combined with digital identification checks (through open banking), and can reduce not just payment acceptance costs but also infrastructure/labour costs.

We need to talk about… fraud

Fraud is the most common type of crime in the UK, accounting for over 40% of all crime in England and Wales, according to the National Crime Agency.

There has also been a significant uplift in payment scams, where individuals are tricked into authorising payments to criminals. This is also known as authorised push payment (APP) fraud. On 7 October 2024, the Payment Systems Regulator in the UK introduced new legislation that stipulates all payment service providers must compensate APP fraud victims up to £85,000 within five days. This has prompted the payments industry to increase investments to reduce the risk of fraud, financial crime, and data loss.

In 2021, the European Union introduced strong customer authentication (SCA), which is a requirement for all online transactions above €50. SCA requires the consumer to have two forms of authentication in order to process the transaction, which could cause friction for consumers. Pay by Bank will naturally meet the multifactor authentication requirements as it requires the consumer to authenticate each individual payment through their banking app. Issuer banks may see a fall in card revenue, but a reduction in fraud losses will have a transformative impact on the business model of a retail bank.

The exponential growth of e-commerce transactions has also caused a surge in payment fraud, which remains a critical challenge for banks, with card payment fraud the leading cause. Consumers hold the assumption that using their credit cards is safer because of the buyer protection, which may be true, but it’s the banks that stump up the cost of reimbursement. The industry needs to be more proactive about outlining the security benefits of transacting through Pay by Bank to encourage adoption, which is just as important – if not more so – as offering incentives.

There are a host of exciting use cases on the horizon for Pay by Bank, whether it’s variable recurring payments (replacing direct debits), PBB for SMEs (imagine not having to manually transfer payments to your plumber every time) or even PBB for your local shop (avoid those minimum spend charges).

But for Pay by Bank to work, it requires collaboration between all stakeholders (government, merchants, payment issuers/acquirers) to ensure PBB can be a major payment rail at the checkout.

About the author

Philip Benton is a Principal Fintech Analyst at Omdia and writes analysis on the issues driving technological change in financial services. Prior to Omdia, he led consumer trends research in retail and payments at strategic market research firm Euromonitor.

In this column, Philip discusses the technological implications and consumer expectations of the latest fintech trends.

You can find more of Philip’s views on fintech via LinkedIn or follow him on X @bentonfintech.