Old school paper checks are a thing of the past, but they are trying to make a new, digitized comeback. Pay By Bank is a fancy way of saying, “pay using an electronic check without having to input my account and routing number for each new transaction.” With electronic check specialty companies like GoCardless and Trustly, consumers can hook up their checking accounts. They can pay by electronic check seamlessly at the point-of-sale.
Will Consumers Adopt This Old-But-New Payment Method?
Earlier this year, Mercator Research pointed out that consumers prefer digital payments over cash and checks. Digitizing checks could change those preferences and boost adaptation to Pay by Bank, but we will not put all our eggs in that basket. Considering the counterpart, digitized cash in the form of centralized banking digital currency poses many risks and could give consumers cold feet.
There is hope for Pay by Bank given our economic disposition with ever-rising inflation. Brian Riley, Director of Credit at Mercator researched the current inflation situation in this report: Inflation: Keep an Eye on the Consumer Budget – Mercator Advisory Group. With no end of inflation in sight, we expect consumers to decrease their credit card usage and turn to debit cards, cash, and potentially Pay by Bank.
Will Merchants Be Willing to Accomodate Yet Another Payment Method?
Merchants love Pay by Bank because acceptance is free; there are no swipe fees. The Financial Brand announced that a merchant in the U.S. will be rolling out a Pay by Bank strategy in 2023, and many other merchants will follow them. They will be coming out with guns blazing, offering consumers a 5% discount on their total purchase price if they opt in for Pay by Bank payments. That is a compelling offer when compared against your standard credit card reward program.
For example, a consumer spends $50 on groceries.
- The Pay by Bank option grants them a 5% discount, lowering their total to $47.50. They received a $2.50 discount in that transaction.
- Their credit card provides 1.5% cash back on all purchases. The consumer will receive $0.75 in cash back from their bank for that transaction.
In terms of incentives, the pay-by-bank option proves to be richer for the consumer.
Will Pay by Bank Stick?
Pay by Bank has potential. As the product develops, it will be interesting to see how protections keep pace with branded network payment cards with zero liability for fraud, and risk. Merchants might only offer this 5% discount as a part of their promotional budget to get the ball rolling. Once widespread adoption picks up, merchants might drop this incentive with hopes that consumer behavior will stick. Once inflation begins to ease up, consumers will jump back to their credit cards, particularly when cash is short.
Overview by Sophia Gonzalez, Research Analyst, Debit Advisory Service at Mercator Advisory Group.