By Patti Murphy
Pay by bank. Account-to-account transactions. Bank-to-bank payments. The nomenclature may differ, but not the process: it's all about moving money from a buyer's bank account to that of a seller.
This latest trend in payments is being ushered in by several factors, including the introduction of real-time payments, the development of open banking infrastructure, and merchants' ongoing quest to broaden payment acceptance options while also reducing payment acceptance costs.
Open banking establishes standards for sharing consumer financial data with financial institutions and third-party fintechs through application programming interfaces. The APIs enable secure transmission of payment instructions and authorizations between FIs and third parties.
The Consumer Financial Protection Bureau plays a key role in open banking standards, under authority granted by the 2010 Dodd-Frank Act. The consumer watchdog agency voiced concerns that current data sharing arrangements between FIs, third parties and consumers often lack a means for verifying consumer consent.
Earlier this year, the CFPB offered a proposed rule that addresses these concerns. For example, it sets criteria for standards-setting bodies, and the types of data that can be made available (for example, a consumer's transaction history and rewards credits).
The FIS Global Payments Report 2023 revealed that there were almost 70 real-time payment schemes worldwide providing high-speed payment rails that help drive A2A payments. They accounted for $525 billion in global ecommerce transactions in 2022, up 13 percent over 2021, when the tally was $463 billion.
In the United States, A2A accounted for 9 percent of ecommerce transactions in 2022. A2A is projected to grow to 11 percent by 2026, fueled in part by FedNow, the real-time payment network launched in 2023 by the Federal Reserve, and continued growth of RTP, the real-time network operated by The Clearing House.
More recently, the FIS Global Payments Report 2024 revealed that A2A payments are gaining much faster in developing markets, where card payments are not entrenched, and where A2A networks receive strong government support as a means of promoting financial inclusion.
In Poland, blik, a privately operated A2A network owned by six local banks and Mastercard handled 68 percent of that nation's ecommerce transaction value in 2023 and is projected to handle 73 percent by 2027.
Volt, a real-time payments platform based in London, recently revealed it is working with Farfetch, an online marketplace for luxury fashions, to make a pay-by-bank solution available to consumers in the UK, Germany and the Netherlands. "We believe that real-time payments have a transformative potential for retail," said Kat Marangos, vice president for strategic accounts at Volt.
"A2A payments have found much less success in the UK and USA.," FIS' 2024 report noted, even though merchants "crave A2A's lower cost of payment acceptance." The problem is that A2A schemes lack structural chargeback mechanisms and the rewards systems that have become common to card systems, the report stated.
Ronald Herman, founder and CEO of Sionic, an Atlanta-based digital payments company, said his company is addressing these problems head on. Sionic built a comprehensive fraud detection and mitigation service exclusively for real-time bank-to-bank payments at checkouts, whether those be online, mobile or in-store.
Sionic can provide instant dispute resolution. Leveraging AI technology, disputes are resolved instantly between buyers and sellers without bank involvement. The solution even incorporates a bank perks pass that allows users to earn instant perks from participating merchants.
Sionic has been working with Jack Henry & Associates (JHA) and Google Cloud Computing, to develop specific use cases. Slalom, a global technology firm based in Seattle, which specializes in creating artificial intelligence-based synthetic data, supports data creation to train models for Sionic based on its global bank fraud detection practice.
"We are invested heavily in a comprehensive and innovative instant payments system, with the kind of security that is lacking in today's real-time payment landscape," Matt Watson, chief technology officer at Sionic said in a press release.
Financial institutions participating in either real-time bank payment rail (FedNow or RTP) and wanting to offer pay-by-bank commerce services to their business and personal account holders will be required to participate in Sionic fraud protection services.
Sionic plans a beta test of its bank-to-bank payment network this fall, which will be open to small and midsize merchants as well as enterprise retailers. The solution will become available for ecommerce, in-person and eventually in-vehicle commerce transactions, Herman said.
Sionic is working with JHA to integrate its solution with JHA's PayCenter, which hosts about 800 FIs. The company also has access to about 1,500 Google Cloud platform sales reps who can sell its solution directly to retailers.
Herman said the solution can also be offered by ISOs and agents. "They need to offer their customers multiple payment methods to stay relevant, including pay-by-bank," he said. "The feedback we are getting is that resellers view pay-by-bank as an acquisition and retention tool."
Consumers will learn about pay-by-bank from their FIs and need only tap or click to agree to enroll their checking accounts, selecting either their Apple or Google wallet for payments and the collection of perks. Sionic can "support NFC or QR Code checkouts natively within the wallets," Herman said.
Pay-by-bank entails a seven-step process for consumers, Chris Colson, payments expert at the Federal Reserve Bank of Atlanta, explained in an August post to the Reserve Bank's website.
Recently, Walmart, which has long been a critic of interchange, made headlines when it revealed an agreement with Fiserv that will allow online shoppers to make real-time payments directly from their bank accounts to the retail behemoth.
Herman believes the arrangement between Fiserv and Walmart will move the needle on pay-by-bank adoption at the point of sale. "We are promoting the heck out of that. Even though Walmart/Fiserv's pay-by-bank is for online only and requires Walmart's wallet, it supports our business model nicely," Herman said.
A spokesperson for Fiserv said Walmart is one of "multiple large enterprise clients leveraging our pay-by-bank capabilities," which currently utilize the ACH. In September 2024, Fiserv and Walmart completed the first such transactions over real-time payment rails. "The real-time rails used were the proprietary Fiserv NOW network," not FedNow nor RTP, though those may be used in the future, the spokesperson said, adding, "That transaction was a proof of concept."
"The key for Fiserv is enabling payment choice – both for the merchant in terms of how they get paid, and the consumer in their options for ways to pay," the spokesperson noted.
Separately, Casey Klyszeiko, head of Carat and global ecommerce at Fiserv, said in an email that the tech giant is "uniquely positioned at the intersection of merchants and financial institutions, allowing us to help our clients execute on these new and innovative payment experiences."
Fiserv's own research points to consumer awareness and demand for A2A/pay-by-bank payments both within bill pay platforms and merchant wallets. Seventy-eight percent of those polled earlier this year said they were aware of pay-by-bank as a payment option. The research also found that 40 percent of consumers actively use pay-by-bank, although most do so for paying bills.
As has been reported in several investment news outlets, Mizuho SA analyst Dan Dolev sees pay-by-bank as a potential threat to Mastercard and Visa. Dolev is quoted by the website Seeking Alpha as saying,"At just $0.05-0.06 cost per transaction for financial institutions, FedNow offers an alternative to US debit interchange."
But the reality is that both card networks have been pursuing pay-by-bank services of their own – services that can exist in tandem with their card systems.
Mastercard and JPMorgan announced a pay-by-bank product in 2023, powered by Mastercard's open banking technology and JPMorgan's ACH capabilities. The solution is meant primarily for billers as an improvement over traditional ACH collections. The telecom giant Verizon has been piloting the solution, Mastercard said in a statement.
Visa has been applying its infrastructure, technology and capabilities to build an A2A solution it intends to deploy in the UK in early 2025. Like Mastercard, Visa is targeting billers, such as utilities, rent and childcare facilities. It also plans to target subscription services, including digital streaming, gym memberships and food boxes.
"Visa A2A will be based on an open system available for all eligible banks and other industry partners to join, and introduces standards, rules and a dispute management service to help protect consumers and further modernize open banking-based payments," Visa said in a statement. Payments will clear through the UK's Faster Payment System, which features near real-time settlement.
"Bank payments are a popular way to pay bills and services but have remained largely unchanged since the inception of direct debit 60 years ago," said Mandy Lamb, managing director, Visa UK and Ireland. "We want to bring pay-by-bank methods into the 21st century and give consumers choice, peace of mind and a digital experience they know and love."
Lamb added that Visa is "bringing our technology and years of experience in the payments card market to create an open system for A2A payments to thrive. Visa A2A will ensure consumer-to-business bank transfer payments have similar levels of protection that consumers are used to when using their cards." 
Patti Murphy, self-described payments maven of the fourth estate, is senior editor at the Green Sheet. She also co-hosts the Merchant Sales Podcast, and is president of ProScribes Ink.
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