Is Pay-by-Bank the Future? How Plaid Is Challenging Cards with Lower-Cost Payments
- Nishant Shah
- Mar 1, 2025
- 12 min read
Updated: Jul 29
A customer makes a $1,000 payment, but the merchant never receives the full $1,000. Card-processing fees, gateway charges, fraud-management costs, and dispute expenses all reduce the final amount.
For a business processing thousands of high-value transactions, these costs can become a serious drag on margins. Cards remain convenient and familiar, but they were never designed to be the lowest-cost option for every type of digital payment.
That is why more U.S. businesses are examining pay-by-bank vs cards.
Pay-by-bank allows a customer to connect a bank account and authorize payment without entering card details. Plaid is helping make this experience more practical by combining account connectivity, verification, payment authorization, risk tools, and access to multiple bank-payment rails.
Does that mean cards are about to disappear? No. Cards still offer familiarity, rewards, access to credit, broad acceptance, and well-established dispute processes. However, pay-by-bank is becoming a credible alternative for high-value payments, recurring bills, account funding, loan repayments, and B2B transactions.
What Is Pay-by-Bank?Pay-by-bank is a payment method that allows customers to authorize payments directly from their bank accounts without entering credit or debit card details. In the United States, a pay-by-bank transfer may use ACH, Same Day ACH, RTP, or FedNow. Plaid helps businesses connect and verify customer accounts and manage authorized bank payments. |
Why Are Businesses Comparing Pay-by-Bank vs Cards?
Card payments make complex processing feel almost invisible. A customer enters a card number or uses a digital wallet, receives an immediate authorization, and completes the purchase. That convenience carries a cost.
Card-processing fees increase with transaction value
Card expenses commonly combine a percentage of the transaction with a fixed fee. A merchant may also pay for its gateway, fraud tools, chargeback handling, and other services.
This structure becomes more noticeable when the transaction is a rent payment, tuition installment, insurance premium, loan repayment, business invoice, marketplace deposit, or other high-value purchase. The Federal Reserve notes that card interchange is typically charged as a percentage of transaction value, while ACH and instant-payment operators generally charge participating financial institutions on a per-transaction basis. The merchant’s actual costs still depend on its provider, volume, risk profile, and required services.
Recurring card payments can fail
Cards expire, get lost, are reissued after fraud, or are replaced when a customer changes accounts. These events can cause recurring payments to fail even when the customer intends to pay. A business then has to contact the customer, request updated card information, retry the charge, and possibly suspend the service.
A verified bank-account connection may remain usable for longer. However, bank payments can still fail because of insufficient funds, a closed account, revoked authorization, or a bank return.
Chargebacks carry direct and indirect costs
A card chargeback may involve more than the disputed amount. Businesses may also incur chargeback fees, lost products or services, evidence-preparation work, customer-support time, and higher fraud-management costs.
Pay-by-bank uses different authorization, return, and dispute processes. It may reduce exposure to certain card-related chargebacks, but it does not eliminate fraud, unauthorized transactions, customer complaints, or payment returns.
Merchants want greater payment flexibility
The real appeal of pay-by-bank is not simply that it may be cheaper. It gives merchants another payment option. A business can continue accepting cards for familiar retail checkout while encouraging bank payments for high-value or recurring transactions.
What Is Plaid Pay by Bank?
Plaid pay by bank is a bank-connected payment experience that allows a customer to select an eligible financial institution, authenticate an account, and authorize a payment from that account.
Plaid is not the customer’s bank. Its role can include connecting accounts, verifying information, supporting payment authorization, assessing certain payment risks, initiating transfers, and providing payment-status events.
Plaid Transfer is described as a U.S.-only, multi-rail bank-payment platform supporting ACH, RTP, Request for Payment, wire transfers, and FedNow transactions through a single API. Available rails, eligibility, pricing, and capabilities should always be confirmed for the intended use case.
Organizations building connected payment products often need more than an API. FintegrationFS helps financial businesses design and develop secure products through its fintech software development services, including payment workflows, ledgers, reconciliation, operational dashboards, and production monitoring.
How the Plaid pay-by-bank experience works
The customer selects “Pay by Bank” at checkout.
Plaid Link opens inside the website or application.
The customer chooses a financial institution.
The customer authenticates through the supported bank flow.
The customer selects an eligible account.
The application receives a secure account token.
The customer reviews the amount and authorizes payment.
The payment is initiated through the selected bank-payment rail.
The merchant receives payment-status updates.
The transaction is reconciled with the relevant order, account, or invoice.
The customer sees a short connection journey. Behind it, the business must
manage security, consent, payment status, returns, refunds, reconciliation, and customer support.
Plaid Pay-by-Bank vs Manual ACH Payments
Pay-by-bank is not simply traditional ACH with a new label. The underlying payment may use ACH, but the customer and account-verification experience can be significantly different.
Traditional manual ACH entry
The customer enters routing and account numbers.
Typing errors can occur.
The business may use microdeposits for verification.
Account ownership may be difficult to establish.
The flow can feel unfamiliar or slow.
Plaid-enabled pay-by-bank
The customer selects and authenticates with a bank.
Account details can be tokenized.
Verification may occur during the connection journey.
Manual entry errors can be reduced.
The business can create a more guided experience.
This does not guarantee that every connection or payment will succeed. Bank support, account eligibility, authentication, risk decisions, and the selected rail all affect the final result.
How Account-to-Account Payments Work
Account-to-account payments, also called A2A payments, move funds directly from one bank account to another without using a traditional card network.
1. Account connection
The customer connects an account through a secure authentication flow. The application should avoid directly collecting online-banking credentials when an institution-hosted or tokenized connection is available.
2. Account verification
Depending on the approved products and use case, the platform may verify account validity, account type, routing information, ownership, balance, and connection status. Verification reduces uncertainty, but it does not guarantee settlement. A balance can change between authorization and processing.
3. Payment authorization
The customer should clearly understand the amount, date, payment recipient, one-time or recurring status, cancellation terms, and refund process. Consent should be understandable rather than hidden inside dense terms.
4. Payment initiation
The payment is submitted through an appropriate rail. This could include standard ACH, Same Day ACH, RTP, or FedNow. An instant account connection does not automatically mean instant settlement.
5. Status monitoring
Payment events may include created, pending, submitted, posted, settled, failed, returned, or canceled. Webhook processing should be idempotent so duplicate events do not produce duplicate actions.
6. Reconciliation
The application must match the payment with the correct customer, order, invoice, or account. It should handle fees, returns, refunds, timing differences, and exceptions.
This operational layer is why businesses frequently need experienced financial technology engineers rather than treating pay-by-bank as a checkout-button project. FintegrationFS provides digital banking solutions for businesses that need connected payments, account management, transaction histories, compliance workflows, and reconciliation.
Pay-by-Bank vs Cards: A Practical Comparison
Funding and pricing
Pay-by-bank draws from the customer’s bank account and often uses fixed or differently structured pricing. Cards draw from a linked bank account or credit line and frequently combine percentage-based and fixed fees.
Familiarity and acceptance
Pay-by-bank familiarity is growing, but some customers remain hesitant to connect an account. Cards are highly familiar and have broad domestic and international acceptance.
Credit and rewards
Pay-by-bank usually has no credit component and limited rewards. Credit cards allow delayed repayment and commonly offer points, miles, or cashback.
Recurring payments and reversals
A bank account may remain stable longer than a card credential, but ACH payments can be returned. Cards can expire or be reissued and use an established chargeback process.
Best-fit transactions
Pay-by-bank is strongest for high-value, recurring, bill-payment, account-funding, and B2B use cases. Cards remain strong for everyday retail, global commerce, and familiar consumer checkout.
Actual pricing, speed, protection, eligibility, and liability depend on the provider and contractual arrangement.
Merchant Fees: Credit Card vs Bank Transfer
The cost advantage is one of the strongest arguments for pay-by-bank, but businesses should avoid comparing only the visible transaction fee.
Plaid says its internal research found an average 40% reduction in processing costs when businesses move payment volume from cards to pay-by-bank. This is a general Plaid-sourced figure, not a guaranteed result for every merchant.
Illustrative payment-cost example
Imagine a company collecting a $1,000 payment. If its card-processing agreement were an illustrative 2.9% plus $0.30, the charge would be approximately $29.30. If its total pay-by-bank transaction charge were an illustrative fixed fee of $5, the gross difference would be $24.30.
At 5,000 payments per month, that theoretical difference would be $121,500. The business must still subtract Plaid or connectivity fees, payment-rail charges, risk tools, returns, engineering, reconciliation, support, recovery expenses, and customer incentives.
These numbers are illustrative. They should not be interpreted as current Plaid pricing or a guaranteed commercial result.
Cost per successful payment is the better metric
Cost per successful payment = processing fees + fraud losses + returns + operational costs + recovery expenses ÷ successfully completed payments |
If pay-by-bank saves money on each initiated transaction but causes checkout abandonment or frequent returns, the real savings may be smaller than expected.
Open Banking Payments vs Credit Card Checkout
The difference between open banking payments vs credit card checkout is not limited to the rail. The customer motivations are different.
A card lets the customer pay with a familiar credential, access credit, and potentially earn rewards. Pay-by-bank asks the customer to use available bank funds and complete an account-connection journey.
Merchants therefore need to answer a simple question: “Why should I connect my bank when I can already use my card?”
Strong answers may include:
A lower service fee
A small discount
Faster account funding
Easier recurring payments
No need to update an expiring card
A more direct way to pay a bill
Improved payment-status visibility
Any incentive should be tested against the expected savings. A discount that is too large can erase the economic advantage.
Where Plaid Pay by Bank Works Best
Rent and property payments
Rent is recurring and relatively high-value. A property platform may reduce card costs by encouraging residents to connect bank accounts. It still needs to handle insufficient funds, returns, late fees, retries, and resident communication.
Loan repayments
Lenders can use bank-connected payments for scheduled repayments. Bank accounts may remain stable longer than card credentials, potentially reducing avoidable failures. The lender must maintain clear authorization records and comply with applicable payment requirements.
Investment and wallet funding
Investment, brokerage, gaming, marketplace, and fintech applications may use a pay by bank transfer to fund customer accounts. Account ownership verification can help reduce funding from unrelated accounts. The application must decide when deposited funds become available, particularly when the payment may still be returned.
Insurance and tuition
Insurance premiums and tuition installments can be high-value and recurring. Even a modest reduction in processing cost may become meaningful. Platforms must support payment timing, third-party payers, partial refunds, and account-level reconciliation.
B2B invoices
Businesses are already familiar with ACH, making B2B one of the most natural pay-by-bank markets. A better experience can combine account connection, payment authorization, invoice matching, approval controls, and status visibility.
SaaS and marketplaces
Pay-by-bank may work well for annual contracts, enterprise subscriptions, or expensive recurring services. Marketplaces may use it for buyer collections or seller payouts, but usually require ledgers, split-payment rules, reserves, refunds, and negative-balance management.
For companies evaluating these workflows, FintegrationFS provides fintech API integration and product engineering across open banking, ACH, payments, digital banking, identity, and reconciliation.
Where Cards Still Have a Strong Advantage
Cards are familiar
Customers understand card checkout, and details may already be stored in a browser, wallet, or merchant account. Connecting a bank introduces a new step that may reduce conversion when the benefit is unclear.
Credit cards provide purchasing power
Pay-by-bank generally draws from available account funds. Credit cards allow consumers to purchase now and repay later, which matters for high-value discretionary purchases.
Customers value rewards
Points, miles, and cashback create a reason to continue using cards. Merchants can offer a pay-by-bank incentive, but it must remain below the expected savings.
Card dispute processes are familiar
Customers generally understand how to dispute card purchases. Bank-payment returns and error-resolution processes may feel less familiar. Clear refund, cancellation, and support policies are essential.
Cards have broad acceptance
Card networks work across stores, websites, applications, and international markets. U.S. pay-by-bank is currently more naturally suited to digital transactions and established relationships.
The Biggest Pay-by-Bank Challenges
Instant connection does not mean instant money
A customer may connect an account in seconds while the underlying ACH payment takes longer to settle. Plaid supports real-time payment capabilities through RTP and FedNow, but eligibility depends on the institution, transaction direction, product availability, and use case.
ACH returns still happen
Payments can be returned because of insufficient funds, a closed account, invalid details, revoked authorization, a stop-payment request, or an administrative error. The product needs automated return handling, notifications, retry rules, and an alternative payment option.
Connection reliability varies
Not every bank supports every capability. Authentication flows differ, connections expire, and customers may need to reconnect. Merchants should monitor performance by institution instead of relying only on overall averages.
Fraud changes rather than disappears
Risks include account takeover, identity theft, unauthorized account use, first-party misuse, synthetic identities, manipulated confirmations, and refund fraud. Verification and balance checks can reduce risk, but they are not guarantees.
Compliance remains the business’s responsibility
Depending on the product structure, businesses may need to evaluate Nacha rules, the Electronic Fund Transfer Act, Regulation E, authorization requirements, privacy obligations, sanctions and AML controls, state money-transmission requirements, error resolution, and record retention.
Using an infrastructure provider does not automatically satisfy every obligation. The model should be reviewed with qualified legal and compliance professionals.
Security Controls for Account-to-Account Payments
Use tokenized connections and avoid storing customer bank credentials.
Encrypt and restrict access to payment tokens and sensitive information.
Verify account ownership where appropriate and permitted.
Apply transaction limits based on customer history, amount, risk, and reversibility.
Monitor repeated failures, unusual values, ownership mismatches, returns, and refunds.
Create clear payment, return, and refund notifications.
Maintain an auditable record of authorization and transaction events.
How Plaid Is Challenging Card Networks
Plaid is not recreating every function of Visa, Mastercard, or a card issuer. It is challenging the assumption that every digital payment needs a card network.
Plaid owns a familiar account-connection layer
Many consumers have encountered Plaid while connecting a bank account to a fintech application. Extending that connection into payments can reduce the amount of new behavior a customer must learn.
Plaid combines connectivity and payment context
Depending on approved products and permission, a business may combine account connectivity, ownership verification, balance information, risk signals, authorization, transfer initiation, status events, and reconciliation data.
Plaid supports multiple bank-payment rails
Plaid Transfer supports standard and faster bank-payment options through one platform. A multi-rail approach allows a business to select a method based on speed, cost, transaction direction, and institution support.
Plaid gives merchants another choice
Cards no longer need to be the default for every transaction. A merchant can offer cards for familiar retail checkout, bank payments for high-value transactions, ACH for recurring collections, and instant rails for eligible urgent payments.
A2A Payments Adoption in the United States
The U.S. bank-payment infrastructure is already substantial. Nacha reported that the ACH Network processed 35.2 billion payments worth $93 trillion in 2025. Same Day ACH processed 1.4 billion payments valued at $3.9 trillion, with volume increasing 16.7% from 2024.
Large ACH volume does not mean every consumer is ready to select pay-by-bank at e-commerce checkout. Much of the volume comes from payroll, bill payment, B2B transfers, and other established uses.
Future A2A payments adoption will depend on better checkout design, clear customer benefits, strong bank coverage, reliable connections, faster payment availability, easy refunds, visible security explanations, and consistent dispute handling.
Is Pay-by-Bank the Future of Payments?
The answer is yes, but not in the sense that cards will disappear.
Pay-by-bank addresses real merchant problems: percentage-based costs, unstable recurring card credentials, expensive high-value transactions, limited routing choice, and slow manual ACH onboarding.
Cards solve equally real customer problems: access to credit, rewards, familiar checkout, international acceptance, established disputes, fast authorization, and compatibility with digital wallets.
The most likely future is mixed. Businesses will route or encourage payments based on transaction value, customer preference, risk, urgency, and cost.
Pay-by-bank is likely to gain the most ground in rent, loan repayments, insurance, tuition, account funding, B2B invoices, high-value subscriptions, and digital bill payment. Cards will remain strong for everyday commerce, global retail, impulse purchases, travel, and transactions where rewards or credit matter.
Metrics That Determine Whether Pay-by-Bank Is Working
Customer metrics
Pay-by-bank selection rate
Bank-connection completion
Checkout abandonment
Time to complete payment
Repeat usage
Support requests
Payment and financial metrics
Authorization and payment success
Return and refund rates
Settlement time
Cost per successful payment
Savings compared with cards
Fraud losses
Incentive costs
Net savings per transaction
Operational metrics
Reconciliation match rate
Manual-review rate
Webhook failures
Exception-resolution time
Duplicate transaction rate
Conclusion
The debate about pay-by-bank vs cards should not be reduced to which method is universally better.
Cards offer familiarity, credit, rewards, broad acceptance, and mature consumer experiences. Pay-by-bank can provide lower-cost processing, stable account relationships, improved verification, and better economics for high-value or recurring payments.
Plaid is helping close the usability gap by combining account connectivity, verification, risk tools, and multi-rail transfer capabilities. That makes account-to-account payments easier for U.S. businesses to offer inside digital products.
The future will not belong exclusively to cards or bank transfers. It will belong to businesses that offer the right payment method for the right transaction and give customers a clear reason to use it.
Frequently Asked Questions
1. What is Plaid pay by bank?
Plaid pay by bank allows customers to connect an eligible bank account and authorize a payment without entering credit or debit card details. Depending on the implementation, Plaid can support connectivity, verification, risk evaluation, authorization, transfer initiation, and payment-status management.
2. Is pay-by-bank cheaper than accepting credit cards?
Pay-by-bank can be less expensive, particularly for high-value transactions where card fees include a percentage of the payment amount. Businesses should compare total costs, including provider fees, payment-rail charges, returns, fraud, development, reconciliation, support, and customer incentives.
3. Is a Plaid pay by bank transfer instant?
Not always. Account connection and authorization may happen quickly, but settlement depends on the payment rail. Standard ACH, Same Day ACH, RTP, and FedNow have different speeds, operating models, eligibility requirements, and finality characteristics.
4. Can pay-by-bank completely replace credit cards?
Pay-by-bank can replace cards for selected use cases, but it is unlikely to eliminate them. Cards continue to provide credit, rewards, familiar checkout, broad acceptance, and established dispute processes. Many businesses will benefit from offering both options.
5. Which businesses benefit most from account-to-account payments?
Businesses collecting high-value or recurring payments may benefit most. Examples include lenders, property platforms, investment applications, insurance providers, education platforms, B2B software companies, marketplaces, and fintech products that allow customers to fund accounts.
