Credit cards have long dominated online payments, but a new option is quickly gaining steam in fintech circles: Pay by Bank. This payment method lets customers pay businesses directly from their bank accounts, skipping the card networks altogether. For software-as-a-service (SaaS) platforms, marketplaces, and other digital businesses, Pay by Bank promises a more streamlined, cost-effective way to get paid. Companies are taking notice, not only because of customer interest, but because offering Pay by Bank can slash payment processing fees and boost security.

In this blog, we’ll explain what Pay by Bank means in practical terms, how it works under the hood, the benefits (and some challenges) it brings, and why it’s poised to play a big role in the future of payments.

Pay by Bank refers to a payment that moves money directly from the payer’s bank account to the business’s bank account, without using a credit or debit card. In other words, the customer pays you straight from their checking account instead of via a card or third-party wallet. You might also hear it called an open banking payment or direct bank transfer. No matter the name, the core idea is the same: cut out the card networks and let banks handle the transaction directly.

For consumers, paying by bank often feels similar to other online payments, but with a few extra steps the first time. At checkout, a user who chooses “Pay by Bank” will be prompted to connect their bank account (if they haven’t already). Modern implementations use secure APIs and integrations to make this quick. Once the bank account is linked and authorized, the payment is initiated directly from the customer’s bank to the merchant’s bank. Behind the scenes, the money can move over the ACH network (Automated Clearing House) or newer real-time payment rails like RTP or FedNow, depending on what the business uses. In the U.S. today, ACH is the most common rail for Pay by Bank transactions, while real-time networks are just emerging.

How Pay by Bank works (in a nutshell):

1. Customer selects “Pay by Bank” at checkout.

2. They connect securely to their bank via login or authentication.

3. Funds are transferred directly from bank to bank.

• Lower Fees: Credit card processing fees often sit around 3%. Pay by Bank leverages ACH or other direct rails with minimal fees—often just cents per transaction. The result? More margin back to the business.

• No More Card Churn: Bank accounts don’t expire like cards do. This makes Pay by Bank especially powerful for subscription businesses, reducing failed recurring payments and improving retention.

• Smoother User Experience: Many consumers find it easier to log in with their bank credentials than to dig up and enter a 16-digit card number. With account-on-file, repeat purchases can be just one click.

• Greater Security & Less Fraud: Each transaction is verified by the customer’s own bank, leveraging strong authentication like biometrics or two-factor login. No card data is stored or transmitted.

• Higher Success Rates: With funds pulled directly from an account, there’s less risk of failed payments compared to cards hitting credit limits.Incentives for Adoption: Because merchants save money, they can incentivize customers to pay by bank with discounts or perks—while still coming out ahead.

• Legacy UX (Now Solved): Historically, customers had to enter routing and account numbers manually. Today, instant bank verification via APIs makes it quick and seamless.

• ACH Speed: ACH isn’t instant, but real-time rails like RTP and FedNow are changing that. The future of Pay by Bank will be instant transfers and confirmations.

• Fraud & Returns: Bank payments can be reversed if unauthorized, but modern fraud detection and account verification tools help mitigate this risk.

• Consumer Habits: Many users are tied to their credit card rewards, but younger generations are more open to direct bank payments—especially when paired with discounts.

• Wider Adoption: Expect to see Pay by Bank offered across more e-commerce sites, SaaS platforms, and subscription models.

• Real-Time Payments: As RTP and FedNow mature, Pay by Bank will match card speed while beating it on cost.

• Growing Trust: Consumers are increasingly comfortable linking bank accounts through secure fintech tools. Over time, seeing a “Pay by Bank” button will feel as natural as seeing a “Pay with Card” option.

• Business Advantage: Merchants can either reinvest the savings from lower fees or pass them to customers, creating a flywheel of adoption.

If you’re a developer or technical decision-maker, implementing Pay by Bank is easier than ever:

• Use a Payments API that Supports ACH: Instead of building bank connections yourself, leverage a platform like Payload that offers all payment types—Pay by Bank via ACH included—through a single integration.

• Enable Instant Account Verification: Modern APIs make it simple for users to link their bank instantly and securely.

• Test in Sandbox: Payload’s sandbox environment lets you try Pay by Bank and other payment types right away, without needing to talk to sales.

• Start with the Right Use Cases: Consider recurring subscriptions, high-value transactions, or bill payments where card fees hurt most.

Pay by Bank is transforming how businesses think about payments. It’s cheaper, more direct, and backed by bank-grade security. For SaaS platforms, adding this option means fewer failed payments, better margins, and happier customers.

Forward-thinking companies that adopt Pay by Bank early can stand out as innovators, offering users more choice while cutting costs.

Ready to get started? Jump into Payload’s developer sandbox today and see how easy it is to build Pay by Bank into your product. No sales call required, just click the "Get Started" button on our homepage.