Dive Brief:

• The time when consumers use pay-by-bank to shop at grocery stores or restaurants won’t come for years — if it happens at all — because other payment methods like credit cards are easy to use, Zach Perret, CEO of the San Francisco-based fintech Plaid, said last week at a conference held by the Federal Reserve Bank of Philadelphia.
• Perret envisions pay-by-bank replacing transactions in which paper checks are commonly used, he said.
• “Everyone assumes that pay-by-bank means that you walk into Starbucks and somehow use your bank account to pay for coffee,” Perret said. “Realistically, pay-by-bank is focused on a much broader swath of things, and I think it’s going to take a long time, if ever, to get to that Starbucks purchase.”

Dive Insight:

Perret said he doesn’t think consumers will use pay-by-bank to eat at restaurants or shop for groceries any time soon, he told the Phildalephia Fed. Instead, pay-by-bank will be more commonly used to pay bills such as mortgages or utility payments, he said.

“Everyone likes fewer checks,” Perret said, noting that it takes time and effort to process a paper check. 

If a consumer can settle their utility bill with pay-by-bank, “it’s easier for the utility provider, and it’s probably cheaper and less complex for the bank and the consumer,” he said.

Meanwhile, other methods of payments are so easy, he doesn’t see consumers giving them up.

“I use Apple Pay to pay for my Starbucks,” Perret said. “That’s incredibly simple, I have no reason to change that.”

And paying with a credit card works so well, “why even try to go after that?” he said.

Merchants, however, are constantly on the lookout for payment methods like pay-by-bank to free themselves from credit and debit card swipe fees. Credit and debit card transactions make up the bulk of payment transactions in the US..

A San Francisco Fed survey of 9,000 American consumers released in March found that 31% of all transactions were made with credit cards, and 29% were made with debit cards in 2022. Figures for 2023 were not available.

Groups like the National Retail Federation say swipe fees are too high, and have supported laws aimed at increasing competition among card networks. Those fees range from 1.5% of the total transaction to 3.5%, according to Bankrate, which cited industry analysts.

The federation also supports the open banking regulations released last week by the Consumer Financial Protection Bureau, saying the new digital standards would encourage the spread of credit card alternatives such as pay-by-bank.