Can Pay by Bank play into consumers’ growing preference to resist credit cards?

Total US credit card debt surged $45 billion in the second quarter from $986 billion in Q1 2023 and has now crossed the $1 trillion mark. While the record debt spike provides insight into the deteriorating financial health of consumers, it also tends to open the door to new upticks in delinquencies and charge-offs. 

Consumers are facing mounting pressure to manage their finances and simultaneously pay down revolving debt. This situation is drawing consumers’ attention to different payment methods other than card-based payments. Less familiar payment methods like pay-by-bank are coming to the fore as consumers resist the use of credit cards to stay out of a debt cycle or debt build-up, according to a new report by MX.

Merchants are inclined to tap into the account-to-account (A2A) payment methods, too. A2A payments are a lower-cost option and also allow merchants to evade card swipe fees as the transaction goes directly through the bank. It can save them as much as 70% of transaction costs compared to card-based payment methods. Moreover, the payment mode offers secure transactions to a certain extent as no sensitive card data is exchanged with the merchant. 

Account-to-account payments use the Automated Clearing House (ACH) rails to transfer money from a consumer’s checking account to a merchant’s. Although with the Same Day ACH modification to the ACH network, transactions can’t be settled instantaneously, they can be processed quickly – three times a day instead of once. The launch of the FedNow network this summer may provide a window of opportunity for financial institutions to enable instant transfers down the line.

That said, the challenging part lies in driving the widespread adoption and stickiness of a different payment method, as consumers may be hesitant to step out of their comfort zone and change their habits, or trust a new provider. Despite wanting to limit their card use, 78% of consumers are reluctant to learn a new payment interface and want to stick to their usual payment method. 

What would it take to convince users to adopt or switch to a new payment method?

Incentives and rewards can be one way to help encourage users to try out another payment option and eventually build loyalty. 55% will consider making payments using the pay-by-bank option if they are offered incentives. These may include discounts or other perks that make the option equally or more attractive than competing options. Younger consumers are more interested in making a payment through their bank accounts, compared to 62% of Baby Boomers who said they would “never” use ACH, versus an average of 28% across all other generations. 

Beauty brand Summer Fridays, for example, offers store credits if consumers opt to pay directly through their bank accounts. 

While incentives and rewards can contribute to adoption, they aren’t the sole decisive factors for the success of a payment option. Although inflation and recession woes are driving a shift in consumer payment choices, ease of use, security, and overall acceptance rates by consumers in a given market take precedence over incentives for users when it comes to selecting a go-to payment option. Finding a balance between convenience for users to start using a payment method and incentives offered by merchants to use that payment option, can fuel higher adoption rates.