Cards, Pay-by-Bank and the Rise of Multi-Rail Banks

Banks, card networks and merchants are combining traditional card payments, growing pay-by-bank services and a new model in which banks route transactions across several payment rails. The change reflects recent shifts in regulation, payment infrastructure and merchant cost pressures.

Pay-by-bank services let shoppers move money directly from their bank account to a merchant using APIs or instant transfer networks. At checkout consumers select their bank, authenticate through the bank’s app or a one-time passcode, and confirm the payment. These flows can cut the use of card-based clearing for some transactions and rely on strong customer authentication.

Some banks are developing or partnering to offer multiple rails: card issuing and acquiring, real-time bank transfers and open-banking payment initiation. Those banks expose developer APIs and merchant-facing platforms that present card payments, pay-by-bank options or one-click bank transfers. Routing logic on these platforms can send each payment over the rail judged best for cost, speed or authorization assurance.

Merchants gain lower interchange costs on direct bank transfers in many markets, faster finality of funds on instant rails and fewer disputes for certain transaction types. Card networks continue to invest in tokenization and fraud tools that support recurring payments and small retail purchases, preserving consumer convenience in those use cases. Banks offering multi-rail services can earn orchestration fees and alter their exposure to card network economics while aiming to improve customer retention.

The trend has progressed where instant payment systems and open-banking access have matured. In markets with widely adopted instant domestic rails, some merchants prefer direct bank transfers for high-value purchases or where card fees and chargeback risk are a concern. Card payments remain widely used due to rewards programmes, broad acceptance and installment options.

Technical and operational challenges remain. Not all accounts or markets support immediate account-to-account transfers. Reconciliation varies across rails, and merchants must handle different settlement timings and refund processes. Fraud teams face new patterns when pay-by-bank flows interact with account takeover and social engineering schemes. Banks and payment providers are investing in shared standards, stronger API security and fraud-detection models adapted to each rail.

Open-banking rules in parts of Europe and payment-initiation standards have allowed third parties to request authenticated bank transfers for customers. Several countries have built real-time settlement systems that support instant transfers. Regulators focused on competition and consumer protection are monitoring how multiple rails coexist and whether consumers keep clear information and choice at checkout.

According to a senior payments executive at a large retail bank who declined to be named: ‘Banks need to give customers simple choices and make the back end smart enough to use the right network for each payment. That means offering card convenience and the lower-cost settlement of direct bank transfers, with the right fraud controls in place.’

Industry participants expect the pace of adoption over the next few years will depend on merchant uptake, broader reach of instant transfers across markets and how payment orchestration affects checkout experience and fraud rates. Where multi-rail banking gains traction, merchants and banks are expected to refine routing rules and customer messaging to present the appropriate payment options at checkout.