Pay by Bank: what it is and why it matters for your business

• Pay by Bank (also known as Account-to-Account or A2A payments) lets customers pay directly from their bank account at checkout, with no card details required.
• Open Banking regulations are driving rapid growth, with A2A payment transactions projected to grow by 209% by 2029.
• Key business benefits include higher conversion rates (up to 98%), lower processing costs, and significantly reduced fraud.
• Consumer adoption is accelerating as Pay by Bank combines the familiarity and security of banking apps with the speed and simplicity of digital payments.

What is Pay by Bank?

Pay by Bank is a payment method that lets customers pay directly from their bank account to a merchant, without the need for a card or an intermediary payment network. Also known as Account-to-Account (A2A) payments, it uses Open Banking technology to connect a consumer’s bank account directly to a merchant at checkout. The customer selects their bank, authenticates using their existing online banking credentials or biometrics, and the payment is completed instantly and securely. Because no card network is involved, Pay by Bank typically offers lower fees, faster settlement, and reduced fraud risk compared to traditional card payments.

Pay by Bank powered by Open Banking isn’t just a payment option - it’s a key to future-proofing your business.

The future of payments is evolving rapidly - with digital-first solutions growing in popularity by leaps and bounds. According to the latest Open Finance Report, these types of Open Banking-powered payments are set to gain significant momentum in the coming year, with transactions projected to grow by a staggering 209% by 2029.

A key driver of this growth is Account-to-Account (A2A) payments - also known as Pay by Bank - which are expected to expand at a 14% annual growth rate. This puts Pay by Bank at the forefront of the next generation of payment experiences, offering a more efficient alternative to traditional methods like debit cards.

Let’s dive in to learn:

• Why now is the time to offer Pay by Bank payments
• 3 ways Pay by Bank payments will help your business grow
• Why consumers are increasingly opting for Pay by Bank

The growth of Pay by Bank: why the time to act is now

Direct bank payments or Pay by Bank are gaining steam - partly because of the significant cost savings and increases in customer satisfaction that businesses benefit from - but also because of new opportunities that are being unlocked as Open Banking regulations evolve.

The much-anticipated Proposal for a Regulation on Payment Services (PSR) and the Proposal for a Directive on Payment Services and Electronic Money Services (PSD3) were revealed on June 28th, 2023. Despite the giant strides made with PSD2, the EU Commission identified four key areas for improvement in the European Payments market.

• Consumer confidence in fraud protection
• Limitations in Open Banking framework functionality
• Uncertainty caused by inconsistent powers and obligations from EU supervisors
• Unlevel playing field for banks and non-bank PSPs

This next phase of European Open Banking clearly looks to prioritise the experience of users, reduce friction in Open Banking payments, increase the availability of data and prioritise the security of consumers. The stage is being set for an exciting new chapter in Open Banking payments, and businesses that act now can secure a competitive edge, meet the demands of the modern consumer, and create frictionless experiences that drive growth. Helping businesses future-proof their operations.

Top 3 gains for businesses offering Pay by Bank payments

1. Increase conversion rates

When you get rid of the hassle at checkout - and offer simple, direct payments - conversion rates go up. Why?

• It reduces friction: Pay by Bank payments are as fast and easy as it gets. Research commissioned by Trustly from Appino shows that 21% of UK adults had a Direct Debit registration fail because of issues like manual card entry. But with instant payments, all that’s required is selecting the bank and account, vastly reducing friction and making consumers more likely to complete purchases. In our experience, you can hit conversion rates of 98% and up by giving your customers a simpler, quicker way to pay.
• It reduces payment failures: Cards expire every 3-5 years, interrupting recurring payments and leading to failed transactions, higher churn rates and lost revenue. In fact, research shows that 50% of all consumer churn is directly caused by payment failures due to expired or outdated card details. But with Pay by Bank payments, which allow consumers to pay directly from their bank accounts using just their online banking credentials, you can essentially eliminate this kind of unintentional churn.

2. Lower your processing costs

Open Banking flips the script on the high processing fees and delayed settlements that come with traditional payment methods, such as cards. How?

• It eliminates card fees: Direct account-to-account transfers cut out the middlemen like card networks, which means lower fees. This is especially beneficial for businesses with high ATV products or services - where saving even the smallest amount per transaction adds up to far lower operational costs.
• It improves cash flow: Instant Pay by Bank payments vastly improve cash flow because funds are transferred from customer accounts instantly. Traditional card payments can delay fund settlement by 3-5 days and often involve holdbacks (e.g., 20% of funds) to cover potential defaults, especially in high-risk industries. Utilising faster settlement methods through Open Banking ensures quicker access to funds, typically settling the next day from a cash flow perspective.

3. Drop your fraud rates

Pay by Bank payments are as safe as they come because of the direct bank connection, minimising the risk of fraud or data breaches that can happen with traditional payment methods.

• It prevents fraud: Direct payments are safer because they rely on dedicated, secure connections with banks and strong customer authentication (SCA), such as biometrics, to verify transactions. Because no manual entry of sensitive payment information is required, these account-to-account payments inherently reduce fraud. However, data-enriched payments can further reduce fraud by using Open Banking and KYC data to verify and assess customers - keeping businesses and consumers secure.

The bonus: consumers love Pay by Bank

Pay by Bank looks and feels like what your customers already love and trust - their bank. By combining the trust, familiarity and security of their banking apps with a speed and UX similar to a mobile wallet, the new account-to-account solutions feel safe and familiar to many users. In market after market, such as in Sweden, the Netherlands, and in Poland, we’ve seen the same thing: once Pay by Bank payments become widely available, user adoption grows rapidly.

Get ready to offer the future of payments

Pay by Bank powered by Open Banking isn’t just a payment option - it’s a key to future-proofing your business. Merchants who act now can meet the growing demand for secure, innovative, and cost-effective financial services, gaining a competitive edge in a market driven by innovation and customer expectations.

With Open Banking and new regulations, companies can integrate payments, accounts, and data into one seamless solution. This simplifies operations, reduces costs, and allows you to scale faster with fewer providers. By cutting out middlemen, you’ll improve efficiency and lower costs, all while offering frictionless, personalised payment experiences that boost adoption, conversion, and customer loyalty - which will be essential to winning (and keeping) consumers to your business in the years ahead.

Frequently asked questions

What is Pay by Bank?

Pay by Bank is a payment method that allows customers to pay directly from their bank account to a merchant, using Open Banking technology. Also known as Account-to-Account (A2A) payments, it bypasses traditional card networks, enabling faster, more secure, and lower-cost transactions.

How does Pay by Bank work?

At checkout, the customer selects Pay by Bank as their payment method and chooses their bank. They are redirected to their bank’s app or online banking portal, where they authenticate using their existing credentials or biometrics. Once authenticated, the payment is sent directly from their account to the merchant’s account in real time.

Is Pay by Bank safe?

Yes. Pay by Bank is considered one of the safest payment methods available. It relies on Strong Customer Authentication (SCA) - such as biometrics or two-factor authentication - and uses dedicated, secure bank connections. Because no sensitive card data is entered or stored, the risk of fraud and data breaches is significantly reduced.

What is the difference between Pay by Bank and Direct Debit?

Both methods involve payments direct from a bank account, but they work differently. Direct Debit is a pull payment, where a merchant is authorised to collect funds from a customer’s account. Pay by Bank is a push payment, where the customer actively initiates and approves each transaction in real time.

Is Pay by Bank regulated in the UK?

Yes. In the UK, Pay by Bank operates under Open Banking regulations overseen by the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR). More broadly, it is shaped by the EU’s Payment Services Directive (PSD2) and its upcoming update, PSD3. These frameworks set strict rules around data security, consumer protection, and the responsibilities of payment service providers, making Pay by Bank a fully regulated and trustworthy payment method.