Cards, Pay-by-Bank and Multi-rail Banks

Consumers and merchants are shifting payment habits since 2020: card payments remain widely used, pay-by-bank account-to-account options are expanding, and banks are offering multiple payment rails from a single relationship.

The trend accelerated after 2020 as open banking APIs became more common and instant payment systems expanded. Merchants have faced pressure to cut fees, which has increased interest in direct bank transfers that reduce card interchange and chargeback exposure.

In Europe and the UK, pay-by-bank services that move money directly from a shopper’s bank account to a merchant have grown because they lower card fees and reduce disputed transactions. In the United States and Australia, faster settlement systems such as RTP and FedNow in the US and the New Payments Platform in Australia have encouraged banks and fintechs to add bank-transfer options.

Many banks now present a menu of payment options to customers and merchants, including cards, account-to-account transfers, direct debits, digital wallets and instant payments. A single bank relationship can route a payment over the cheapest or fastest rail available depending on merchant preference, transaction size and fraud risk.

Merchants report lower processing costs for pay-by-bank routes because these flows bypass card network interchange and tend to produce fewer chargebacks. For online merchants, the finality of a bank transfer-funds that arrive directly and cannot be reclaimed via card chargebacks in the same way-has been a key selling point. Consumers can find pay-by-bank simpler at checkout because it uses stored bank credentials and avoids entering card details.

Third-party providers and schemes have packaged bank connectivity and consumer authentication to speed adoption. In markets with open banking rules, technology firms connect to multiple banks through standardized APIs and provide merchants with a single integration. In other markets, payment networks and large banks have launched branded bank-transfer options that appear alongside card choices at checkout. Payment processors and acquiring banks are updating merchant portals and software development kits to support multiple rails.

“Merchants want lower cost and predictable settlement. Consumers want speed and security. Banks can deliver both when they offer multiple rails under one contract,” noted a payments executive at a European merchant acquirer. The executive added that adoption depends on the checkout experience and that fast, simple bank flows produce conversion rates similar to card payments.

Regulation and fraud controls affect which rails gain share. PSD2 and open banking in Europe created technical and legal paths for third-party initiated payments and stronger customer authentication. In the US, without a single open-banking mandate, growth of bank-based rails has relied on individual bank initiatives, fintech aggregators and the rollout of instant settlement systems. Fraud teams are adjusting: account-to-account transfers reduce some card-fraud exposure but require new monitoring for account takeover and social-engineering threats.

Adoption varies by use case. Low-value online purchases, utilities and recurring bills have moved to bank-based payments where merchants can negotiate lower fees. Higher-value purchases and card-linked loyalty programs continue to use cards because consumers value familiar protections, rewards and dispute mechanisms. Buy-now-pay-later services operate alongside both card and bank options and sometimes use bank rails for settlement while providing credit.

Banks are investing in APIs, tokenization and consent-management tools for direct-account payments and are partnering with fintechs to offer white-label pay-by-bank checkouts. At the same time, card tokenization, contactless payments and network upgrades remain in use for in-person and recurring transactions.

Market structure currently includes multiple rails: cards retain share for many transactions while bank-based rails grow where lower costs, faster settlement and payment finality matter most.