In an increasingly digitized world, American consumers are turning to digital platforms to simplify their day-to-day. In fact, the movement of money and information continues to be a focal point of digital innovation in a post-COVID world, and consumer confidence in everything from digital payment to sharing data across platforms is creating new opportunities for merchants and fintechs. To illustrate, consider this:
- Digital wallet users will exceed 5.2 billion globally in 2026, up from 3.4 billion in 2022, representing growth of over 53%.1
- Alternative payments are gaining share, with 24% of Gen Z already using BNPL.2
- Banks will increase API access nearly 50% in the next three years, allowing more real-time transactions from consumer accounts.3
As digital payment options expand, both consumers and merchants can benefit, with consumers turning to wallets as hubs for shopping and saving, and merchants looking to wallets to drive commerce and increase brand loyalty. Because wallets are a hub for alternative payment activity, merchants are investing in experiences that strengthen customer retention and capitalize on the low-cost structure of alternative payment methods.
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One leading example is merchants deploying Pay by Bank solutions. As simple as the name sounds, ‘paying by bank’ is just that – allowing a consumer to link their bank account information within a digital wallet to make a direct ACH payment to a merchant for goods or services. Quite literally, using your bank account as a form of payment. Similar to how credit cards are securely stored on file by a merchant, bank account information is also tokenized and encrypted, and can be stored on file for recurring payments, or as an option for ensuing purchases at checkout.
Pay by Bank is part of the larger open banking trend and will also support real-time payments (RTP) as those schemes evolve in the future.
Advantages of Pay by Bank
By leveraging ACH payment rails to accept a consumer payment, merchants can reduce their own operational costs by avoiding interchange and network fees paid on card-based transactions. This cost advantage is an important consideration in industries that traditionally have low margins, including grocery stores, gas stations, and convenience stores. Reducing payment costs has become a point of emphasis for these merchants as unreliable supply chains and increased inflation have strained business models.
In addition, merchants’ clients using the Pay by Bank solution as part of the Carat omnichannel commerce ecosystem from Fiserv can lower the risk of chargebacks and deliver higher approval rates, which creates topline benefit and a better customer experience.
How merchants are driving adoption
While the merchant benefits of Pay by Bank are clear (cost savings, higher approval rates, etc.), consumers often need an incentive to shift their behavior from paying with credit or debit.
To encourage consumer adoption of Pay by Bank, merchants are reinvesting their cost savings back into loyalty and rewards programs. By creating a benefit, or incentive, to using a bank account as a payment option, brands can shift purchasing behavior by delivering more value to their customers—bringing real-world benefits to the customer while creating an experience that will foster greater loyalty.
Let’s look at a few successful examples:
- Petro station: By offering double the reward points at the pump when customers Pay by Bank, a large petroleum company is driving more activity through the brand’s mobile application, which is reducing costs and driving more commerce from those customers. Since implementing, the company has seen a 30% increase in high-volume, or recurring customers. They also saw an 18% increase in ticket size as compared to debit transactions and 60 bps savings on each transaction.
- Grocery store: By integrating Pay by Bank into their digital wallets and allowing consumers to receive additional rewards at the checkout counter, a large grocery chain is seeing a 33% increase in shopping frequency among Pay by Bank users, a 44% increase in average ticket size compared to debit transactions, and is saving 86 bps per consumer transaction.
Minimizing risk and maximizing trust
While U.S. consumers historically have been hesitant to share bank account information as openly as European consumers, that has shifted as digital wallets have gained prominence in the past five years and U.S. consumers have become more comfortable with the security of digital platforms.
To ensure that users are engaged with a familiar experience when paying by bank, the customer will use their bank account credentials and app-based consumer-facing interface for enrollment, validation, and updates. Connecting Pay by Bank with the familiar banking process helps ensure consumer trust. Once a bank account is linked, Pay by Bank becomes a more secure payment method than placing a card on file, and introduces less risk to the merchant.
Pay by Bank evolving alongside real-time payments
As consumers become more familiar with open banking, and real-time payment (RTP) innovation progresses, merchant interest in providing customers with the ability to pay with their bank account will continue to grow. With that in mind, some of the world’s largest merchants are already looking to tap into enterprise-wide money movement capabilities from Fiserv that will maximize operational efficiencies within these growing trends.
When RTP networks become available for merchant adoption, Fiserv clients already leveraging Pay by Bank will have an omnichannel infrastructure that supports the acceptance of real-time payments (through the Federal Reserve’s FedNow service or the NOW® Gateway from Fiserv) without new integrations. In time, RTP and ACH will be ubiquitous payment options, delivering similar value by allowing merchants to realize increased savings, customer engagement, and more opportunities to drive loyalty.
Contact us today if your business needs help devising strategies and implementing Pay by Bank options.
1Source: Juniper Research
2Source: How Gen Z Shops and Pays: Oliver Wyman
3Source: PYMNTS.com
