In the upcoming year, the payment landscape in the U.S. is poised for a significant transformation as the momentum behind “pay-by-bank” services gains traction. Several converging trends, including the expansion of faster-payment channels like FedNow and RTP, changing attitudes towards payments, and Elon Musk’s ambitious foray into transforming X into a banking platform, are set to propel this shift. The traditional dominance of credit cards may face challenges as businesses seek faster access to funds and consumers embrace the convenience of direct bank transactions.
Despite lagging behind global adoption, the U.S. is gearing up for a surge in “pay-by-bank” or “account-to-account” (A2A) payments in 2024. This method involves payments being sent directly through the banking system, bypassing checks and cards. The 2023 FIS/Worldpay Global Payments Report highlights that in 2022, pay-by-bank represented 9% of e-commerce payments in the U.S., a marginal increase from 8% in 2021. With the introduction of the Federal Reserve’s FedNow instant payments service and other factors, FIS predicts a compound annual growth rate of 14% for A2A payments through 2026.
Globally, A2A is disrupting payment value chains with lower costs compared to card transactions. In Europe, pay-by-bank constituted 18% of e-commerce transactions in 2022, with expectations of further growth due to new regulations. Some countries, like Poland, Finland, and the Netherlands, already see A2A dominating payments, with 67% of Polish e-commerce relying on this method.
The U.S. is experiencing a shift with the launch of FedNow, prompting Forrester to predict that by late 2024, more banks and payment service providers will embrace A2A faster payment capabilities. This shift is driven by merchant sensitivity to card fees and the push for banks to deliver payment solutions in line with open banking principles.
For traditional banking institutions, it’s crucial to consider the implications of pay-by-bank on both consumer and business banking fronts. The method enables direct payments from bank accounts, bypassing even debit cards and utilizing the automated clearinghouse for transactions. Merchants often incentivize consumers with immediate cost savings or loyalty rewards to encourage the adoption of pay-by-bank.
Payment companies like Stripe, Rapyd, Flywire, and Adyen are actively developing A2A offerings for merchants, increasing the likelihood of pay-by-bank’s growth. Notably, J.P. Morgan Payments and Mastercard have initiated a pilot A2A service with Verizon, emphasizing the evolution of industry-level payment dynamics.
In essence, pay-by-bank is not merely a merchant workaround; it signifies a broader evolution within the payments industry. As 2024 approaches, the U.S. is poised for a significant shift in how consumers and businesses engage in financial transactions.