PYMNTS Data Leads Fed Paper on Pay by Bank

Open banking, and specifically pay by bank, promises to transform commerce by letting consumers make purchases and funds transfers directly from their accounts.

But as PYMNTS Intelligence has demonstrated over the course of several months and several reports, though the payment option promises faster fund flows as banks verify accounts and sufficient funds in real time and have lower transaction fees, there’s still relatively low penetration.

Last fall, joint research from PYMNTS Intelligence and Trustly found that among all consumers, only about 6.4% of respondents surveyed said they were already using pay by bank; there’s an encouraging stat in the fact that 40% of consumers would be interested in using pay by bank.

When we asked consumers why they do not use pay by bank, a lack of awareness was the most prevalent response. Overall, 56% said they were not aware of pay by bank’s use cases, or how the mechanics of the payments work.

The potential is especially apparent in the accompanying chart that showed only about 2% of consumers having opted for pay by bank with merchants in retail and eCommerce.

For those consumers who have tried pay by bank, PYMNTS Intelligence has found that the ease of use, cited by 80% of respondents, was another key factor in driving usage. These benefits are especially important for sectors such as retail and grocery.

PYMNTS’ findings got a nod from the Federal Reserve this  week, in a “Fed Notes” posting titled “Pay-by-Bank and the Merchant Payments Use Case: Benefits, risks and potential impacts on consumer payment behaviors in the U.S.,” in which author Byoung Hwa Hwang noted that pay by bank offers a potentially cost-efficient and secure alternative to cash and cards.

Within the open banking construct, per the post, “open banking APIs do not require customers to share their bank login information with third-party service providers. Rather, sensitive login credentials stay between customers and their banks.”

And, with mention of PYMNTS’ deep dive, the Fed’s discussion points to our findings that “the current use of Pay-by-Bank for consumer payments is generally low, but adoption is growing. Findings from a 2024 [PYMNTS] study on Consumer Sentiment About Open Banking Payments indicate that the overall uptake of Pay-by-Bank remains limited; about 11% of U.S. adults have conducted at least one open banking payment transaction in the past year …

“At the same time, the [PYMNTS] study points to a higher willingness to use open banking payments among younger respondents (72% of Gen Z and 66% of millennials) and higher income earners (consumers earning at least $100,000 per year), suggesting potential for future adoption among these groups,” the post went on to say.

The author notes that there are some possible headwinds: “Future research could further explore potential factors driving adoption behaviors: For customers, the potential additional security layers of Pay-by-Bank transactions may not be enticing enough to give up spending rewards, perks, or the extension of credit offered by existing payment methods, most notably credit cards. Pay-by-Bank adoption could be incentivized with merchant discounts, but such promotions would impact the cost savings calculations of merchants themselves.”

On that last point, we note, incentives can indeed pay the way for greater pay by bank adoption. We’ve found a 72% increase in consumer interest in using pay by bank when offered incentives like cash-back discounts or loyalty benefits.

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