Bank of America may be joining Citi, TD, Chase and other U.S. financial institutions to offer pay by bank, an account-to-account payments channel, amid an increase in real-time payments usage.  

The $3.2 trillion bank launched its pay by bank solution in the United Kingdom in February 2022 with payments fintech Banked, Brad Goodall, chief executive of Banked, told Bank Automation News. 

Following its successful EMEA launch, the two companies are in the “evaluation phase” of whether to offer the payments channel to the United States for faster and less expensive consumer-to-business payments, Irfan Ahmad, managing director and head of U.S. payments at Bank of America, told BAN. 

In the U.K., the bank launched the payments channel by leveraging existing open banking regulations and familiarity with instant payments, Ahmad said.  

Meanwhile, U.S. tech providers like Fiserv are seeing increased traction with pay by bank as real-time payments adoption grows, Charles Williams, vice president and general manager of alternative payments at Fiserv, told BAN. For example, Sunoco and Walmart have already implemented Pay by Bank as a payment channel on their platforms, Williams said. 

Rising adoption 

The increased use of real-time payments in the U.S. will drive adoption of pay by bank, Gartner analyst Debbie Buckland said. And, as more banks use FedNow, a real-time payments channel launched last month, they may create or partner with other payments widget providers to offer pay by bank options to customers, she said. 

“FedNow is driving conversation around pay by bank due to the fact that real-time payments can further reduce payments acceptance costs,” Williams said. “Merchants will increasingly adopt pay by bank as consumers continue to become more comfortable with digital wallets, open banking experiences and increasingly use alternative methods for digital payments beyond credit and debit.”

E-commerce is one of the biggest use cases for pay by bank but Bank of America and Banked are also seeing opportunities in bill collections and payments segments as well, Banked’s Goodall said. 

Open banking extension 

Pay by Bank is an extension of open banking, and they work hand in hand, Gartner’s Buckland said. 

Open banking provides consumers with the ability to give fintech and any payment service providers access to their payment information, Buckland said. 

Pay by bank is “allowing consumers to make a payment, leveraging their bank account,” she added. Payments made through the channel are usually accomplished in real-time, and merchants know funds will be available immediately, whereas payments made via the Automated Clearing House (ACH), on the other hand, could take time depending on ACH clearing window times, Buckland said. 

If a consumer selects pay by bank on an e-commerce checkout window, they are providing consent to banks and payments providers to access their account to complete the transaction, Buckland said. Banks then check the customer’s balance to “make sure there’s enough money to cover the payment before they close out” the cart, she added. 

The difference between Zelle and pay by bank 

Bank of America’s Zelle solution is a peer-to-peer payment platform and not necessarily built for retail and converting at checkout, a Banked spokesperson said. Zelle transaction volume increased to $91 billion in Q2 2023, up 20% year over year, according to Bank of America’s Q2 2023 earnings presentation.

“Zelle does facilitate the transfer of money from one bank account to another but can only do so under certain conditions, such as both parties having a Zelle account,” according to the spokesperson. “Pay by bank is a method by which customers pay merchants directly through their bank account in real time.” 

Gartner’s Buckland said the channel is a less expensive and faster alternative to other payment channels like credit and debit cards, making it attractive for merchants. And it is helpful to merchants because it reduces “the cost of payment acceptance on any given transaction,” Fiserv’s Williams said.