Recently, the Fed published a research note examining the rise of Pay-by-Bank as a payment solution for consumers, focusing on its adoption at the point of sale as an alternative to cash or credit payment options. The note outlined that Pay-by-Bank, also known as account-to-account or bank-based payments, enables direct transfers from a consumer’s bank account to a merchant’s account, bypassing traditional card networks and potentially reducing merchant fees. According to the Fed, Pay-by-Bank relies upon an open banking infrastructure and must be facilitated by third-party service providers.

The Fed reported that while Pay-by-Bank adoption remains low with about 11 percent of adults having conducted one Pay-by-Bank transaction in the past year, this payment option could offer savings and enhance security features. The Fed noted that most current Pay-by-Bank transactions settle over ACH rails, but in the future, they could use instant payment systems. The note concluded that further research is needed to assess cost comparisons, consumer protection measures, and the impact on existing payment methods as Pay-by-Bank continues to develop in the U.S.