The payment landscape is rapidly changing, and one of the most exciting shifts is the rise of pay-by-bank. While card-based payments have long dominated, trends across emerging markets are showing a strong move toward real-time, bank-to-bank payments. With real-time systems like Brazil’s PixPay and India’s UPI leading the way, the U.S. is starting to catch up with FedNow, the first U.S. real-time payments rail, launched in 2023.

Pay-by-bank payments allow consumers to make transactions directly from their bank accounts without a credit or debit card. This method, which is transforming payments worldwide, offers notable advantages, especially when it comes to reducing costs and enhancing security. Here, we’ll look at why pay-by-bank is gaining traction, what benefits it offers to consumers and businesses, and how the U.S. payments market might evolve.

A Global Movement Toward Real-Time Payments

Many U.S. consumers may not yet be familiar with pay-by-bank payments, but around the world, these systems are already achieving widespread adoption. In India, the UPI (Unified Payments Interface) is expected to handle 80% of retail transactions by 2027. Brazil’s PixPay, launched in 2020, has seen astonishing uptake, with nearly all Brazilian adults now using the system. Both of these platforms allow users to transfer funds directly between bank accounts instantly, making payments faster, cheaper, and more secure.

What’s driving this rapid adoption? For emerging markets, real-time payments provide a way to reduce reliance on cash and offer people a faster, more cost-effective alternative. Moreover, regulatory bodies in these countries are pushing for open payment systems to simplify transactions for businesses and consumers alike. In Brazil, the central bank has mandated that all banking apps include PixPay as a payment option, making it easily accessible to consumers.

Why Pay-by-Bank Makes Sense for the U.S.

While the U.S. has been slower to adopt real-time payment systems, there is now momentum with the introduction of FedNow. This system provides the backbone for real-time payments and makes pay-by-bank a viable option for U.S. consumers. Industry leaders in fintech are looking at ways to leverage pay-by-bank to benefit both consumers and businesses.

For example, younger U.S. consumers are showing a preference for paying directly from their bank accounts, often shunning credit cards due to the risks of debt. This generation has grown up with digital payment options and values simplicity and cost savings. According to industry data, as many as 60-70% of young people in the U.S. prefer bank-based payments, as they offer greater control over spending without the risk of revolving credit.

Key Benefits for Consumers and Merchants

The shift to pay-by-bank offers a range of benefits that appeal to both consumers and merchants. These advantages could make bank-based payments a serious competitor to traditional card-based options in the years to come.

1. Lower Transaction Costs

Credit card processing fees are high, especially in the U.S., where interchange fees make it one of the most expensive countries for card-based payments. Pay-by-bank, on the other hand, typically carries much lower fees. This reduction in cost can be passed on to consumers or reinvested by businesses to improve customer experience. For subscription-based businesses, for example, pay-by-bank offers significant savings by avoiding high fees for recurring payments.

2. Reduced Churn

Another advantage of pay-by-bank is that it can lower customer churn rates. While credit cards are replaced every two to three years, people tend to hold onto their bank accounts for much longer, often for over a decade. This longevity means fewer disruptions for merchants relying on recurring payments, as customers won’t need to update their billing information as frequently. This stability is particularly valuable for subscription-based models, where customer retention is critical.

3. Improved Access for Underbanked Populations

Pay-by-bank also extends payment access to individuals who may not have credit cards but do have bank accounts. By providing an alternative to card payments, businesses can reach new customers who may have been previously excluded from digital transactions. This inclusivity benefits both merchants and consumers, creating more opportunities in the digital marketplace.

4. Enhanced Security and Lower Fraud Rates

One of the strongest appeals of pay-by-bank lies in its enhanced security. Unlike credit cards, which can be prone to fraud, bank-based payments use more secure authentication methods, often through biometrics or multifactor verification. Countries with successful real-time payment systems, such as India and China, have seen significant reductions in fraud by combining bank payments with advanced identity verification.

Pay-By-Bank Adoption Challenges and the Path Forward in the U.S.

Despite its benefits, pay-by-bank faces some challenges in the U.S. The established consumer habits around credit card rewards (such as cashback and airline miles) are strong motivators for many Americans. Older generations, in particular, tend to favor card-based payments because of these rewards. However, industry experts believe that providing targeted incentives for pay-by-bank could encourage more people to try it out.

Convenience is also key. Leading fintech companies are developing tools to make pay-by-bank as simple and frictionless as possible. Instead of entering routing and account numbers, consumers can log into their bank account through a secure portal. By making this process seamless, companies hope to attract more users and drive adoption.

The Future of Pay-by-Bank in the U.S.

Looking ahead, pay-by-bank has the potential to become a staple in the U.S. payment ecosystem. As technology advances, real-time payments will likely become a common feature across various sectors, including e-commerce, subscription services, and bill payments. Additionally, as more large merchants adopt pay-by-bank, the network effect could accelerate consumer uptake.

Another factor that could drive adoption is the ongoing shift toward AI-powered financial tools. AI could soon handle much of the work behind managing and executing payments, allowing consumers to automate bills, manage subscriptions, and make purchases—all from their bank account. This shift could make pay-by-bank a more attractive option for consumers who value simplicity and automation.

The Role of Partnerships and Innovation

Partnerships between fintech companies and payment providers are playing a crucial role in shaping the future of pay-by-bank. For instance, Plaid, a leader in open banking technology, has partnered with major payments providers to make bank payments more accessible for U.S. merchants and consumers. This collaboration aims to streamline the integration of pay-by-bank options, ensuring that it is as easy to use as traditional payment methods.

These partnerships are not just about making bank payments available—they’re about optimizing the user experience. By creating intuitive, user-friendly platforms, companies are working to lower the barriers to adoption. As consumers become more comfortable with these new payment options, the demand for pay-by-bank is likely to grow.

Why Pay-by-Bank Matters

The U.S. payment landscape is on the brink of a transformation. As pay-by-bank gains traction, it offers consumers a convenient, cost-effective, and secure way to manage their finances. Businesses, too, stand to benefit by reducing transaction fees, lowering churn, and accessing a broader customer base.

While it may take time for pay-by-bank to achieve widespread adoption in the U.S., the signs are clear: this method has the potential to reshape how Americans think about payments. As younger generations continue to favor bank-based payments and as more merchants integrate these options, pay-by-bank could soon become a mainstream choice for consumers looking to simplify and improve their financial lives.