Could Pay by Bank (Using Open Banking) Replace Contactless Payments?


In recent years, contactless payments have revolutionised the way we pay for goods and services, this payment method was accelerated during the global Covid-19 pandemic, as it offered convenience, speed, and security. However, technology continues to advance, and new concepts are emerging, Pay by Bank also known as Open Banking, could become one of the most disruptive trends in the payments sector in recent times. As Pay by Bank gains traction, some experts wonder if it could eventually replace contactless payments. In this thought leadership blog, I’ll delve into the potential of Pay by Bank and explore whether it could transform the way businesses will take payments.

Understanding Pay by Bank/Open Banking

Pay by Bank is a concept that allows third-party financial service providers to access customers’ financial information securely through APIs (Application Programming Interfaces) provided by banks. This framework empowers consumers to share their financial data with authorised fintech applications, which can then offer personalised services, where pay by bank aims to create a more innovative financial ecosystem that will allow consumers to pay seamlessly without using a debit or credit card.

The Rise of Contactless Payments

Contactless payments, on the other hand, have already seen widespread adoption across the UK and right around the world. The simplicity of tapping a card or smartphone against a payment terminal has transformed the way we pay for goods and services. The ease, speed and security of contactless payments have led to their widespread popularity among consumers, merchants, and financial institutions alike.

Exploring the Potential of Pay by Bank/Open Banking

While contactless payments have undoubtedly altered the payments landscape, Pay by Bank has the potential to complement and, in some cases, even replace this widely adopted method. Let’s consider a few scenarios where pay by bank can offer compelling alternatives:

  1. Security: Pay by Bank reduces the risk of fraud via secure connections to a user’s online and mobile banking. So, account or bank details are being shared and for businesses it removes the chargeback risk and requirement for PCI DSS of this payment, making transactions faster and more cost-effective.
  2. Streamlined E-commerce Payments: Open banking could streamline e-commerce payments by eliminating the need for credit card information. Instead, consumers could authorise direct bank-to-bank transfers, potentially reducing higher transaction fees for certain card types like business credit cards and enhancing security.
  3. Instant settlement: Whilst next day settlement is becoming more standard across card acquirers’ offerings, pay by bank enables a business to receive funds in real time.
  4. Additional functionality: payment solutions such as Direct Debits can be instantly approved and set up whilst using pay by bank to make an initial payment, streamlining the process for businesses like gyms.

Challenges / Considerations

While Pay by Bank / Open Banking presents intriguing possibilities, several challenges must be addressed before it can truly rival contactless payments:

  1. Security and Privacy Concerns: As open banking involves sharing sensitive financial data, robust security measures and privacy regulations are essential to gain consumers’ trust.
  2. Consumer Awareness and Acceptance: Educating consumers about the benefits and safety of Pay by Bank is crucial to gaining widespread acceptance and adoption.

I started out by asking “Could Pay by Bank/ Open Banking replace contactless payments”? In summary the short answer is a loud NO. However, it does have the potential and we are starting to see how it will disrupt the financial industry, offering innovative payment solutions. While it might not entirely replace contactless payments, Pay by Bank will complement and enhance the way we make transactions, leading to a more interconnected and efficient financial ecosystem.

As the Pay by Bank landscape evolves, collaboration among financial institutions, fintech companies, and regulators will be essential to overcome challenges and unlock the full potential of this transformative concept. Ultimately, striking the right balance between innovation, security, and user experience will pave the way for a future where both contactless payments and Pay by Bank / Open Banking can coexist, catering to diverse consumer preferences and needs.