The payments landscape in North America is evolving, with Pay-by-bank emerging as a disruptive force in digital commerce. While still in its early stages compared to Europe and the UK, Pay-by-bank transactions—also known as account-to-account (A2A)[1] payments—are gaining momentum as open banking adoption expands in the U.S. and Canada.
This article explores how Pay-by-bank works, its advantages and challenges, comparisons with European markets, key players leading the movement, and quantified market trends.
How Pay-by-Bank Works
Pay-by-bank enables consumers to pay directly from their bank accounts without using credit or debit cards. These payments are facilitated by open banking APIs, allowing merchants to initiate secure, authenticated transactions through consumers’ banking apps.
Process Flow:
Consumer selects Pay-by-bank at checkout.
Authentication occurs via bank login (using biometric authentication or secure banking credentials validated instantaneously by fintech like Plaid or MX). APIs developed by the Financial Data Exchange (FDX)—which has been selected as the open banking standard by the CFPB—can be used to check, in real time, whether a consumer has sufficient funds before initiating a transaction.
Payment is processed instantly (via real-time payment networks like FedNow, RTP in the U.S., or Interac in Canada).
Funds are transferred directly from the customer’s bank account to the merchant’s account, bypassing card networks.
Value to Consumers & Merchants
"Merchants could pass on the savings to consumers through rewards and incentives. Traditional merchant discount rates (MDRs) for card-based transactions are typically in the range of 2.0 percent to 3.5 percent, whereas the cost of an A2A transaction may be a fixed fee of 40 cents to 50 cents per API call." —McKinsey & Company - January 2024 [2]
Cost Savings: Merchants often incur lower transaction fees with pay-by-bank payments and may pass these savings on to consumers through reduced prices or discounts. This direct transfer method eliminates interchange fees associated with card payments, potentially leading to better deals for shoppers.
Personal Financial Management: A benefit of Pay by Bank for consumers is the ability to reduce reliance on credit while staying on track with their savings goals. Instead of a portion of each transaction (often around 3%) going to a credit card company, banks or Fintech, with their PFM apps, can redirect that amount into the consumer’s savings account—helping customers build financial security while strengthening their relationship with the bank. By incentivizing smarter spending and rewarding savings, banks increase customer stickiness and ultimately benefit from a more engaged and loyal customer base.
Enhanced Security: Pay-by-bank transactions are authenticated using the consumer's online banking credentials enabled by secured open banking APIs, reducing the risk of fraud and chargebacks. This secure authentication process can provide consumers with greater peace of mind during transactions.
Immediate Fund Transfer: Utilizing real-time payment networks, pay-by-bank ensures that funds are transferred instantly, allowing for quicker settlement and immediate reflection of transactions in account balances.
Obstacles to Adoption Compared with Credit Cards
Lack of Consumer Protections: Unlike credit card payments, pay-by-bank transactions may not offer robust dispute resolution mechanisms. Consumers could face challenges in recovering funds if goods are not delivered or services are not rendered as promised.
Absence of Rewards and Benefits: Credit cards often provide incentives such as cashback, travel points, and purchase protections. The absence of such rewards in pay-by-bank options can deter consumers who value these benefits.
Missing out Credit: Consumers will miss out on credit cards’ financing of purchases with a 30-day float.
Established Consumer Habits: The ingrained use of credit cards, bolstered by widespread acceptance and familiarity, makes consumers less inclined to switch to alternative payment methods like pay-by-bank. This habitual reliance on cards is a significant barrier to the adoption of new payment solutions.
Perceived Convenience: Credit cards offer a seamless payment experience with minimal input required from the consumer. In contrast, pay-by-bank may involve additional steps, such as logging into bank accounts and authorizing payments, which can be perceived as less convenient.
Comparing Pay-by-Bank Adoption: UK and Europe vs. North America
Pay-by-bank has seen rapid success in the UK and Europe, primarily due to PSD2 regulations that mandate open banking frameworks.
United Kingdom & Europe:
Adoption Growth: Over 8 million UK consumers used open banking payments by 2023 (source: UK Open Banking Implementation Entity).
Market Share: Pay-by-bank accounts for over 10% of e-commerce transactions in the Netherlands, driven by iDEAL payments (source: Worldpay’s 2024 Global Payments Report).
Key Players: TrueLayer, Tink (VISA), GoCardless, Plaid (Europe operations).
North America:
Slow Growth: Less than 2% of e-commerce transactions use Pay-by-bank in the U.S. (source: McKinsey Global Payments Report 2024).
Consumer Preference for Cards: 70% of U.S. payments still rely on credit or debit cards (source: Visa & Mastercard data 2024).
Key Players: Plaid, MX, Trustly, Dwolla, Mastercard’s (formerly Finicity), Fiserv
According to a recent study by Payments Canada, Pay-by-bank is appealing to 29 per cent of Canadians.[3]
Credit Card Giants vs. Pay-by-Bank Fintechs
The Role of Credit Card Networks: Visa and Mastercard dominate North American payments and are actively responding to Pay-by-bank threats:
Mastercard & VISA's Open Banking Push: Respectively acquired Finicity and Tink to enhance direct bank payments.
Visa’s Account-to-Account Expansion: Invested in A2A fintechs and launched Visa Direct for real-time payments.
Leading Pay-by-Bank Fintechs: Several fintech companies are pioneering open banking in North America:
Plaid: API provider connecting banks with merchants to facilitate A2A/Pay-by-Bank payments.
Trustly: Specializes in Pay-by-bank for gaming, e-commerce, and recurring payments.
MX: Data-driven open banking solutions.
Apple & Google Pay: Exploring A2A capabilities alongside traditional card payments.
Market Trends & Future Outlook
The North American Pay-by-bank market is poised for significant growth:
McKinsey estimates $200 billion in consumer-to-business A2A transactions by 2026.
FedNow & RTP networks are expanding real-time bank transfer capabilities.
Consumer Education & Merchant Incentives will be critical for adoption.
With evolving regulations and increasing merchant interest in reducing transaction fees, Pay-by-bank has the potential to reshape North American payments. However, overcoming consumer habits favoring credit cards remains a key challenge
Conclusion: The Future of Pay-by-Bank in North America
While still in its infancy, Pay-by-bank represents a major shift toward faster, cheaper, and more secure digital payments. Learning from Europe’s open banking successes, North America’s growth will depend on stronger bank participation, consumer education, and merchant incentives. As real-time payment networks expand, Pay-by-bank could become a mainstream alternative to traditional card payments.
[1] Although often use interchangeably with Pay-by-Bank, A2A Payments is a broader term that covers any type of direct bank-to-bank transfer, including P2P (peer-to-peer), B2B (business-to-business), and B2C (business-to-consumer) transactions. It includes payments made through traditional ACH, Faster Payments, SEPA, FedNow, or RTP networks.
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