The rise of Pay by Bank: What it means for European merchants

For years, cards have been the default way to pay online across Europe. They’re still the most widely used payment method, but they’re no longer the only option merchants rely on. As businesses look to reduce payment costs, improve approval rates, and create a smoother checkout experience, many are expanding their payment mix. One of the fastest-growing additions is Pay by Bank.

Powered by open banking and instant payment infrastructure, Pay by Bank lets customers pay directly from their bank account instead of using a card. For merchants, it offers the potential for lower payment costs, faster payment confirmation, and fewer failed transactions.

As adoption of Pay by Bank continues to grow across Europe, it is becoming an important part of many merchants’ payment strategies. In this article, we’ll explore how it works, what’s driving its growth, and what businesses should consider before adding it to their checkout.

What is Pay by Bank?

Pay by Bank allows customers to pay directly from their bank account without entering card details.

Instead of using card networks, Pay by Bank uses open banking technology to securely initiate a direct bank transfer from the payer’s account. Customers simply choose their bank at checkout, authenticate themselves through their banking app or online banking, approve the payment, and return to the website.

The process typically takes only a few seconds and relies on Strong Customer Authentication (SCA), making it both secure and convenient.

What is driving the adoption of Pay by Bank in Europe?

The rise of Pay by Bank reflects both changing customer expectations and evolving merchant needs. There are several factors are driving its rapid adoption across Europe.

1. Open Banking has matured

When PSD2 introduced open banking, many businesses viewed it as an interesting innovation rather than a practical payment method.

Today, the ecosystem has matured considerably. Banks offer better APIs, payment providers have improved user experiences, and merchants can integrate Pay by Bank through a single payment provider instead of building individual bank connections.

As a result, implementation has become significantly easier.

2. Instant payments are becoming the norm

Consumers increasingly expect payments to happen immediately.

With the expansion of instant bank transfer schemes across Europe, customers no longer want to wait hours or even days for payment confirmation.

Pay by Bank enables near-instant payment confirmation, allowing merchants to process orders more quickly and improve the customer experience.

3. Merchants are looking beyond cards

Card payments remain essential, but they also come with familiar challenges:

• hight fees

• declined transactions

• expired cards

• chargebacks

• fraud

Pay by Bank addresses many of these pain points by allowing funds to move directly between bank accounts.

Rather than replacing cards entirely, it gives merchants another payment option that can improve payment performance.

4. Consumer trust in digital banking is higher than ever

European consumers have become comfortable managing their finances through mobile banking apps.

Authorising a payment inside a familiar banking environment often feels more secure than entering card details on multiple websites. This growing confidence is helping increase the adoption of bank-based payments across many industries.

How Pay by Bank benefits European businesses

For merchants, Pay by Bank offers more than just another payment option at checkout. It can improve payment performance, reduce operational costs, and create a smoother customer experience.

• Lower payment costs. Because Pay by Bank bypasses traditional card networks, transaction costs can often be lower than card processing fees.

• Higher payment approval rate. Card payments can fail for many reasons, including issuer declines, card limits and suspected fraud. Pay by Bank avoids these by connecting directly to the payer’s bank account.

• Reduced chargeback risk. Traditional card payments allow customers to initiate chargebacks through card schemes. Pay by Bank transactions are authorised directly through the customer’s bank using Strong Customer Authentication (SCA). This makes unauthorised payment claims far less common.

• Faster confirmation. Many Pay by Bank solutions support instant payment confirmation. This improves cash flow and enables quicker order fulfilment.

• Better customer experience. Typing long card numbers, especially on a smartphone, isn’t ideal. Pay by Bank reduces friction at checkout by allowing customers to authenticate directly within their banking app.

Common misconceptions about Pay by Bank 

Despite growing adoption, there are still many misconceptions surrounding Pay by Bank. The three most common are:

“Customers don’t know what Pay by Bank is.”

Many customers may not recognise the name, but they already use similar payment experiences through their banking apps.

As more merchants introduce Pay by Bank, consumer familiarity continues to increase.

“Cards will disappear.”

Cards are unlikely to disappear anytime soon.

Most merchants should view Pay by Bank as a complementary payment method rather than a replacement. Offering both allows customers to choose their preferred payment option.

“Implementation is difficult.”

Modern payment service providers typically offer Pay by Bank alongside other payment methods through a single integration. For businesses, enabling the payment method requires minimal effort.

How to successfully introduce Pay by Bank

Adding a new payment method is only the first step. To encourage adoption, merchants should make Pay by Bank easy to find, easy to use, and relevant to the right customers.

Here are some things to consider: 

• Offer it alongside other popular payment methods. Customers should be able to choose the payment option they’re most comfortable with rather than being forced into a single method.

• Prioritise it in markets where adoption is strongest. Pay by Bank performs best in Northern Europe, where consumers are already familiar with open banking and instant bank transfers.

• Optimise the mobile experience. Since customers authorise payments in their banking app, a smooth mobile journey is essential.

• Monitor performance after launch. Track metrics such as adoption rate, payment success rate, approval rate, and checkout conversion to understand its impact and identify opportunities for optimisation.

Pay by Bank doesn’t need to replace existing payment methods straight away. Instead, it can work as part of a broader payment strategy that gives customers more choice while improving payment performance.

The future of Pay by Bank in Europe

The growing popularity of Pay by Bank isn’t just driven by changing customer preferences. It’s also being supported by major developments in Europe’s payment infrastructure.

One of the biggest is the rollout of instant payments across the EU. Under the Instant Payments Regulation, banks and payment service providers are expanding support for instant euro transfers, making real-time account-to-account payments more widely available. As instant payments become the norm, Pay by Bank is becoming an increasingly practical option for everyday online purchases.

Open banking adoption is also continuing to grow. In the UK alone, there were more than 16.5 million active open banking users by the end of 2025, compared with 12.1 million a year earlier. 

So, while cards will remain an important part of the payment mix, Pay by Bank is becoming a valuable alternative. As more banks, payment service providers, and merchants support it, customers can expect to see it offered at checkout much more frequently in the coming years.