I remember when I started in Card Services for Symitar, some 20 years ago. It was the first time I saw the magic of card approvals. As we were bringing credit unions live on new networks, we could see card transactions processing in real-time – approvals and denials happening all over the world with real people at real locations in real-time. It was like watching the Christmas lights twinkling on the Christmas tree. I was mesmerized.
Flash-forward a few decades, and we’re seeing the beginning of Pay by Bank, a new service that may supplant cards for transactions. Utilities, rental companies and the like have been pulling funds from your account via ACH for decades. What hasn’t existed (except in paper form via checks) is pushing those payments via R&T and account number.
Pay by Bank will allow consumers to pay anyone using a QR code, link or NFC tap. That payment will translate at some point to R&T and account number and will be debited from the consumer’s deposit account. J.P. Morgan Chase launched Pay by Bank in November 2023 in partnership with MasterCard. Bank of America launched Pay by Bank in the U.K. in 2022.
Because it will save them merchant card fees, retailers may incentivize shoppers to use Pay by Bank by offering a discount on their purchase. Consumers who typically pay by credit cards with rewards may not be affected as much as users who primarily use their debit card. So, if this new payment method gains steam, debit card interchange revenue may be at stake.
Right now, Pay by Bank uses ACH channels, but I anticipate it is a matter of time before they are using FedNow or Real Time Payment (RTP) rails to process these transactions. Before you throw your hands up in disgust at the ever-evolving world of payments, keep in mind that we are at the very beginning of this technology and there is a lot that still needs to be resolved before we see mass adoption (if that happens at all).
Card networks have developed knowledge and processes for over 50 years. Just think about what needs to be figured out before this becomes a widespread service: chargebacks, fraud prevention, reissuance of compromised numbers, regulations, digital wallets and stop payments, for example. It’s going to take time to create a healthy ecosystem of technology and processes to make this new payment method viable at scale. Additionally, you can expect a strong response from card networks as this represents a new threat to their business model.
You’re probably thinking, “Pay by Bank, no thanks, my tech plate is full.” I get it. There’s a lot of change going on in the tech space, and it can be hard to keep up. You can take a step toward this new technology by ensuring you have FedNow and RTP on your payments roadmap. You’ll want to be a receiver on these new instant payment rails, regardless of how Pay by Bank works out. MDT offers RTP and soon, FedNow, via the JHA PayCenter service. If you’re interested in these services, please contact your CRM. As always, we’ll keep you posted on additional developments in the payments space.