What Pay by Bank payments are and how they work 

In the constantly evolving landscape of financial services, Pay by Bank is redefining how consumers and businesses pay online and offline. This new form of payment leverages the opportunities created by the European PSD2 regulation, which introduced the concept of Open Banking, allowing third parties to access the bank account data of consumers and businesses. 

With the advent of PSD2, European banks had to make their APIs available to enable TPPs (Third-Party Providers) to access customer bank accounts with their authorisation. This development opened the door to the creation of new information services, thanks to AIS licences, and payment services through PIS licences. 

Thanks to new operators known as PISPs (Payment Initiation Service Providers), it is now possible to make Account to Account (A2A) payments, from the customer's bank account to the merchant's, known as Pay by Bank. 

How Pay by Bank payments work  

Pay by Bank payments are based on simple integration with online banking platforms. When a consumer or business chooses to make a payment via Pay by Bank, they are redirected to their bank's online platform. 

The buyer can authorise the transaction directly from their bank account, without needing to manually enter account or credit card details, as typically required for an Ecommerce payment. This simplified process not only reduces the time needed to complete the transaction but also ensures greater security since sensitive bank account details are never shared with third parties. 

Simplicity, security, and convenience: the advantages of Pay by Bank  

Thanks to the direct integration between the PISP and banking platforms, the payment occurs in just a few simple steps, and the buyer only needs to confirm their intent to proceed with the payment without entering any data. The only requirement for the payer is to have a bank account. 

Security is guaranteed by the bank's authentication process, which is the same process the user is accustomed to for regularly accessing their bank account and making standard transfers. 

Additionally, Pay by Bank can be more cost-effective for both customers and businesses. The fee can be lower compared to credit cards, which involve a fee for the merchant and potentially costs for the payer (e.g., the card fee). 

Moreover, the crediting times are very short: if the transfer occurs within the SEPA circuit, the debit and credit happen within a maximum of two working days. If the transfer underlying Pay by Bank is an instant transfer (SCT Inst.), the times reduce to a few seconds. 

Pay by Bank and its impact on businesses  

With the increasing adoption of fintech and Open Finance, Pay by Bank is rapidly becoming a preferred payment method for consumers and businesses. Its direct integration with online banking platforms offers a unique opportunity to improve operational efficiency and promote greater transparency and security in online payments. 

The reconciliation between payments and financial flows of bank accounts is simplified by PISP Open Banking payments, as the data needed to make an A2A payment (amount, beneficiary, and reason) are automatically pre-filled. This reduces the risk of errors during data entry and ensures that payments are pre-reconciled by definition, significantly reducing back-office work. 

Moreover, an aspect to consider in the B2B and B2B2X context is the transaction limit of this payment method. Typically, Pay by Bank limits are higher than those of other instruments, such as payment cards, which is crucial for high-value transactions between companies. 

Future prospects: the expansion of Pay by Bank  

The ability of Pay by Bank payments to offer a combination of simplicity, security, and convenience for both payees and payers makes this tool one of the most promising for the near future. 

If companies offering this tool invest in a frictionless customer experience and the availability of an increasing number of integrated banks, Pay by Bank could become one of the most widely used alternative payment methods globally.