In a bid to revolutionize online transactions, eBay has unveiled its latest payment method in the UK – Pay by Bank – hot on the heels of Amazon’s adoption. This underlines the rise of Pay by Bank from a novel concept to a mainstream global payment option.
Originating in Europe as an alternative to card payments, Pay by Bank is now creating ripples in the financial sector. The allure of this new method is multifaceted, offering faster payments, stronger security, and a simplified user experience. This innovative approach is challenging traditional payment methods that have long dominated the market. Its popularity is growing rapidly, with a recent Token.io survey revealing that 91% of respondents observed strong merchant demand. Open Banking Limited has estimated a £4.4bn opportunity.
For UK businesses, the implications are substantial. Over the next five years, Pay by Bank could generate significant cost savings through lower transaction fees and improved automation in reconciliation. These savings include an estimated £331m from online payments, £40m from in-store transactions, £110m from one-off bill payments, and £78m from recurring billing.
Emerging Pay by Bank Schemes
Pay by Bank is currently popular for credit card repayments, current account top-ups, and savings account funding. However, as new Pay by Bank schemes emerge, its adoption is set to increase across a range of sectors and use cases.
Potential future use cases for Pay by Bank in the UK include automated e-money account top-ups and everyday consumer transactions. These include mobile, fixed-line and broadband bills, utilities such as gas, water, and electricity, pension scheme contributions, cultural attractions and institutions, charitable donations, and train ticket purchases.
Fragmentation: An Emerging Trend in Pay by Bank
As Pay by Bank scales up in the UK and Europe, a familiar pattern is emerging: fragmentation. Various industry-led and regulatory-led Pay by Bank schemes such as the UK Payments Initiative, giroAPI, and S-Payments have surfaced or are in development. Each scheme offers its unique functionality, geographic reach, dispute frameworks, and commercial models. While this highlights a healthy level of innovation and competition, it is also creating a complex ecosystem.
Open banking regulation in the UK and Europe has laid the foundation but has not provided a finished product for every use case. Industry-led schemes have emerged in response to the demand for more from Pay by Bank, such as recurring payment mandates and dispute resolution frameworks.
Each new Pay by Bank scheme signals a market shift. Different schemes solve different problems and cater to various markets. The existence of multiple Pay by Bank schemes is indicative of a maturing payments ecosystem that is moving beyond a one-size-fits-all model. This isn’t a design flaw; it’s a reflection of healthy competition.
It’s worthwhile to consider the alternative, where card payments achieved global scale through the concentration of infrastructure into two dominant networks. This consolidation eliminated fragmentation, but it also eradicated meaningful competition on infrastructure, pricing, and innovation for decades. Merchants accepted this trade-off as there was no viable alternative.
Complexity vs. Better Outcomes
Unlike card payments, Pay by Bank is taking a different approach. Instead of consolidating into a single scheme, the market is producing multiple strategies – each optimized for different geographies, use cases, and commercial realities. While this adds complexity, it also drives better outcomes through open markets.
Fragmentation is an inevitable result of a market scaling at pace. However, it does create operational challenges for payment providers who aim to deliver seamless Pay by Bank experiences to merchants and consumers.
On one side, multiple competing Pay by Bank schemes can drive innovation and expand payment choices for consumers and businesses. But on the other side, managing multiple schemes introduces complexity, impacting the ability of merchants, fintechs, and payment providers to scale efficiently.
The key to success is not to resist fragmentation, but to abstract it. The organisations that will thrive are those that access multiple Pay by Bank schemes through a unified layer, benefiting from the reach and functionality of different networks without directly managing them. This requires an infrastructure partner that simplifies integration, standardizes payment flows where possible, and enables scalability across markets.
Pay by Bank: A Significant Shift in Modern Payments
Pay by Bank is poised to become one of the most significant structural shifts in modern payments. The competition amongst multiple participants to deliver innovative functionality should be viewed as a positive indication of the market’s maturity beyond its open banking origins.
If managed effectively, the next phase of market maturity has the potential to deliver truly innovative Pay by Bank experiences that expand competition and drive better outcomes for businesses and consumers. If not, fragmentation risks slowing down what is otherwise one of the most promising innovations in the evolution of global payments.
The fragmentation of Pay by Bank is a sign that the market is functioning as it should. The challenge now is to future-proof for a multi-scheme world, with an infrastructure partner capable of ensuring fragmentation never becomes a barrier to scale.
The CEO of Token.io, Todd Clyde, shares these insights.
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