Adyen, a payment gateway and processor that also offers risk management and acquiring services, recently joined forces with Plaid to offer pay-by-bank solutions.
Plaid has pioneered how consumers connect their financial information to third-party apps and services. “Our complementary offerings together form an unparalleled pay-by-bank experience for businesses and end-consumers alike. This alternative payment method not only meets our customers’ demands for continually expanded payment methods—but in the process also significantly reduces costs across the payment chain for them,” stated Adyen’s President of North America, Davi Strazza, in a Finextra article.
A brief recap of pay-by-bank:
- Pay-by-bank transactions are account-to-account payments that move funds from a customer’s bank account directly into the merchant’s bank account.
- Customers do not need to manually enter their checking account number and routing number for each transaction, and can authorize pay-by-bank providers, such as Plaid, to manage their bank data.
- No credit checks are required for eligibility.
Merchants are in favor of pay-by-bank transactions because they reduce processing fees associated with credit and debit card payments. Retailers, including Adidas, Girlfriend Collective, and Skylar have started to accept pay-by-bank on their checkout pages. Some fuel and grocery merchants like Sunoco and Kroger have also shown interest in this alternative payment type.
Consumers are often incentivized by generous rewards to choose pay-by-bank over their credit and debit cards. Rich incentives, secure checkout, and positive user experience seem to be attracting considerable traction for pay-by-bank options. “Plaid is already trusted by about 1 in 3 Americans with a bank account and provides a secure and seamless way to connect financial accounts for bank-linked payments,” explained Eric Sager, Plaid’s Chief Operating Officer.
While most pay-by-bank transactions are currently processed using ACH, they can transact on instant payment rails, such as FedNow and RTP. Funds would be cleared and settled in real time within seconds. Both Adyen and Plaid (via Cross River Bank) are FedNow participants. Annual real-time payment transaction volume in the U.S. is forecasted to reach up to 8.9 billion by 2026, according to ACI Worldwide.
Adyen’s pay-by-bank service provided by Plaid will be available in early 2024. Adyen currently has more than 10,000 U.S businesses plugged in to its platform. We can expect to see a growing portion of these 10,000 businesses supporting pay-by-bank in the upcoming year.
Overview by Sophia Gonzalez, Research Analyst, Debit Advisory Service at Javelin Strategy & Research.