The payments landscape continues to evolve, with innovative methods like Pay by Bank promising to reshape the merchant checkout. Yet, the adoption of emerging payment methods faces a fundamental challenge that needs to be overcome: merchants are hesitant to offer new payment options without proven demand, while demand is dependent on distribution channels and brand awareness – in which merchants play a key role.
In this article, Lena Hackelöer, Founder and CEO of Brite Payments, unpacks this issue. She highlights the need for a balanced approach, where payment providers collaborate with merchants, partners and regulators to simultaneously build trust, distribution and demand. Only by addressing both sides of the equation can we create a more dynamic and inclusive payments ecosystem that supports innovation and meets evolving consumer needs.
Consumers are creatures of habit. For more than 2,000 years, cash was the king of transactions, but rapid technological innovation over the past 50 years means that coins and notes have now largely been supplanted as credit cards, digital wallets and other payment methods have taken advantage of technological developments. In other words, the behaviours of creatures of habit are also malleable, especially where new form factors (i.e. smartphones) facilitate greater convenience. However, trying something new also comes with uncertainty and it can take time to build trust – some consumers are more prepared to embrace the uncertainty than others, which explains the technology adoption curve covering early adopters and laggards.
Today, consumers – particularly those that usually fall in the ‘early adopter’ category – are looking beyond the incumbent online payment method, driven by a desire for more speed and security in their transactions. Brite Payments’ Instant Economy Report found that 42% of Pay by Bank users prioritise speed, while 59% value the enhanced security the payment method offers. Younger generations are leading this shift, with 36% of 18 to 29-year-olds using Pay by Bank weekly, demonstrating the appeal of real-time payments that align with their digital lifestyles.
The appeal of Pay by Bank, however, goes far beyond consumer convenience. For merchants, leveraging bank-level verification for payments, Pay by Bank reduces fraud risk significantly, while providing peace of mind to consumers. It also eliminates chargeback risk. Sounds like a win-win scenario, right? If only it were that easy…
The merchant’s dilemma: offering what’s familiar vs. what’s next
Merchants know that they can’t stand still when it comes to their payment strategy, but introducing new payment methods raises a number of questions. Will customers use the new payment method? What are the costs of technical implementation and what are the considerations for back-office processes and reconciliation? For some merchants, this is reason enough to pump the brakes and delay adopting emerging technologies. In the end, they opt for a “wait and see” approach, even when the potential cost-savings and operational benefits are clear. Other merchants, however, are eager to be seen as the early movers.
We’ve seen this pattern play out several times in recent years with various digital wallets (including Apple Pay), Buy Now Pay Later, and now we see it with Pay by Bank (also known as account-to-account or A2A payments). The reality is that Pay by Bank offers tangible benefits, such as lower transaction costs, reduced fraud and the elimination of chargebacks. Merchants are increasingly cognisant of these benefits, but continue to hold back, weighing the advantages of being in the late majority over the perceived costs of early adoption. Some might be hoping that by waiting they can spot a ‘category winner’ – something that becomes clearer after a phase of market consolidation.
Seamless user experience Is the key to adoption
So how do we unlock growth and make it easier for consumers to benefit from the convenience of Pay by Bank, while making it easier for merchants to take the plunge?
For consumers, trust and familiarity are key. I believe that long term, for Pay by Bank to succeed, the category needs recognisable, consumer-facing brands. This is something that we’re striving for with Brite, but it will take time. What is really critical is for Pay by Bank to deliver a superior user experience. Checkout design and UXcan subtly guide consumers to opt for certain payment methods. Providers can work with merchants to optimise checkout flows, ensuring new payment options are visible and easy to use, whether through direct integration or via a payment service provider (PSP) or shop system.
For merchants, the main incentive lies with the benefits – and potential impact on the bottom line. Lower transaction fees, reduced operational costs such as manual reconciliation, more predictable liquidity, increased security and elimination of chargeback risk. It is the responsibility of providers to educate merchants on these benefits. However, merchants can also be incentivised by removing perceived risks.
One way to do this is by starting small – for example, offering a payment method in one geography, for certain types of purchases, then assessing the results before rolling out more widely. This is a great approach for an enterprise merchant with a dedicated payments team, and the bandwidth to test and tweak. Enabling new payment methods via partners – such as shop systems (i.e. Shopware) or PSPs also minimises the technical effort associated with offering new payment methods, which is a major consideration for resource-strapped SME merchants. Partnerships between Pay by Bank providers and PSPs therefore play a critical role in growing the category.
Overcoming regulatory hurdles
While incentives can help drive adoption, regulation plays an equally important role. In Europe, regulations like PSD2, and the upcoming PSD3, are helping shape the future of online payments. These frameworks encourage innovation while ensuring consumer security through mechanisms like Strong Customer Authentication (SCA). However, navigating this regulatory environment can be challenging, especially for SMEs that may lack the resources and expertise to directly implement compliant payment solutions.
Payment service providers (PSPs) play an important role here too. PSPs are organisations that allow businesses to accept payments by offering a broad range of payment processing services. They act as intermediaries between merchants, banks and customers, ensuring compliance with regulatory requirements and reducing burdens on merchants by streamlining various processes.
Navigating regulations can be challenging for merchants and SMEs, but they do present some opportunities. By adopting solutions like Pay by Bank, merchants can offer a more secure payment experience. Direct account-to-account payments reduce the risk of fraud, offering both merchants and consumers a frictionless, transparent process. However, smaller eCommerce businesses often face high operational costs for compliance. Investing in solutions that integrate seamlessly with these regulations can build long-term consumer trust.
For consumers, effective regulation provides confidence that their data is secure, which in turn makes them more likely to embrace new technologies – like Pay by Bank. By ensuring both regulatory compliance and security, merchants can build a foundation for wider adoption of new payment methods.
Collaborating for a better future in payments
The future of payments ultimately hinges on collaboration between payment providers, merchants and consumers. Pay by Bank is well positioned to meet the growing demand for faster, safer and more convenient transactions, but its success depends on all stakeholders working together.
For merchants, the decision to adopt new methods must go beyond just compliance or cost. It requires a commitment to providing customers with better, more secure options. Payment providers must offer seamless integration and education to make the transition as smooth as possible. And consumers, once presented with a clear value proposition, such as rewards, security and speed, will be more than willing to make the switch.
In the end, the chicken-and-egg conundrum in payments can only be solved by mutual trust and collaboration. As the industry comes together, new payment methods like Pay by Bank can move from being an alternative option to becoming a mainstream, trusted choice.
