How Pay-By-Bank Is Reshaping Business Payments

Paying vendors and getting paid by customers via a bank is now faster and less expensive than ever. When using pay-by-bank, money flows directly from a checking or savings account to a merchant, bypassing credit card networks and hefty fees. Thanks to the use of real-time technology, payments settle instantly or close to it, instead of taking days.

The new and improved speeds, combined with shifting consumer payment trends—particularly among merchants and younger consumers who are increasingly avoiding credit cards and their associated costs—are creating fertile ground for pay-by-bank.

Accelerated payment processing solutions

The Automated Clearing House (ACH) network has been the backbone of U.S. payments for decades, moving trillions of dollars each year. Though traditional ACH settlement takes a couple of days, the network has been upgraded with the rollout of Same Day ACH. A separate instant payment network, Real-Time Payments (RTP), was introduced by a consortium of banks in 2017, and the Federal Reserve rolled out its own instant payment network, FedNow, in 2023.

Same Day ACH and instant payment innovations provide the underlying technology that make pay-by-bank so attractive in the current payments environment, providing faster payment rails for customers to transmit payments to merchants directly from their bank accounts. Many businesses now accept pay-by-bank both online and at the point of sale, often through QR codes or other interfaces. Merchants that rely on in-person transactions, such as gas stations or grocery stores, are investing in point-of-sale technologies that enable their customers to use pay-by-bank. Some merchants have integrated wallet payment solutions, such as Apple Pay or Google Wallet, allowing customers to simply scan and pay with their phones. Pay-by-bank can be extended at the register with these solutions and offers a similar experience to credit card payments.

Merchants appreciate the speed since it means they get paid right away, improving operational efficiency and cash flow.

“There’s been a considerable investment to enable faster pay-by-bank solutions enabling U.S. businesses to reap the same benefits European countries have had for decades,” said Adam Steenhard, vice president of go-to-market strategy and enablement at Fifth Third Bank. “The rise of account-to-account payments and digital wallets gives businesses and consumers more spending options.”

Lowering the cost of payments

Speed isn’t the only reason both merchants and consumers are flocking to bank payments. There’s also a lower cost. Credit card interchange fees have long been an accepted cost of doing business, but business owners increasingly see opportunity to cut costs by discouraging credit card payments.

Card processing fees typically run 2% to 3% per transaction, which can cut into margins quickly. ACH payments, by contrast, can cost less than $1 for many transactions. According to the Nilson Report, U.S. merchants paid $187.2 billion in card processing fees in 2024. Of that total, merchants paid $148.52 billion in fees to process credit cards and $38.68 billion to process debit and prepaid cards.

The average U.S. small business spends thousands a year on card processing fees. Increasingly, restaurants, retailers and other businesses are passing those fees to consumers at checkout. Consumers, especially younger ones, are reacting to this by shying away from credit cards. While credit cards still account for about 35% of consumer payment transactions, according to an annual study by the Federal Reserve, debit cards and alternative methods like pay-by-bank are not far behind, accounting for about 30%. Many consumers want to avoid surcharges on credit card use and interest charges if they keep a balance.

"We’re seeing a trend of consumers using different payment options to avoid some of the historical downsides of credit card spending,” said Steenhard.

The pandemic further accelerated these shifts as both merchants and customers embraced contactless and digital-first options. Pay-by-bank is proving especially useful for larger, recurring payments like insurance premiums or supplier invoices, where the savings for businesses really add up. For high-ticket transactions, the difference is stark. A supplier payment of $50,000 could incur $1,500 in card fees but less than $1 through ACH.

While pay-by-bank has been used by utilities and other businesses with recurring transactions, Steenhard says it is also gaining traction in traditional sectors such as health care, insurance and retail. “People are doing creative things in retail and point-of-sale payments. I see that being a significant area of expansion for pay-by-bank in the future,” he said.

Improved security and consumer protection

Beyond cost and speed, pay-by-bank comes with strong security measures, too. Technological advances enable consumers to authenticate their bank accounts, often with multifactor verification, and merchants can rely on those built-in protections.

“There are more secure connections that leverage your online credentials and the bank’s security, without searching for your checkbook and sharing your account numbers,” said Steenhard.

Bank payments, like credit cards, come with fraud protection, and consumers can challenge unauthorized debits within designated time frames. Emerging technologies provide solutions to streamline returns, simplifying the process for card providers.

Faster resolution

Steenhard noted that one benefit of Same Day ACH and RTP is that merchants get clearer transaction visibility and faster resolution windows. “Merchants feel more in control when they can see potential issues up front rather than waiting on lengthy settlement cycles and encountering potential chargebacks weeks later,” he said.

Pay-by-bank also gives merchants more control over payments. For example, they can now execute returns—when a customer seeks to return a product or there are insufficient funds—directly through an application programming interface (API), reducing manual steps and errors. This is especially attractive for businesses with high transaction volumes.

"Before, you might have to call or go through a manual process for a return. Now it’s built into the experience, so you can quickly and efficiently handle it without friction,” said Steenhard.

These innovations are part of the feature set offered by the embedded finance platform Newline^™ by Fifth Third Bank, as part of Fifth Third’s efforts to help businesses tap into the benefits offered by pay-by-bank.

“One of the differentiators with Newline is that we combine cutting-edge API technology with financial strength and the stability of a bank with over a century of experience supporting businesses,” Steenhard said. Newline’s API capabilities—including safeguards around returns and the ability to issue returns through the API—are another differentiator. “Newline is built like a fintech with all the bells and whistles inside a bank that truly embraces a customer-first mentality,” he added.

These capabilities empower CFOs and operations leaders to self-serve, scale and manage payments efficiently. For businesses, that means less time spent on back-office tasks and more time to focus on growth.

Growth ahead

Pay-by-bank isn’t just a payment option—it’s part of a larger shift toward more efficient, tech-enabled financial operations. Pay-by-bank adoption is poised to accelerate as merchants search for ways to cut costs and improve cash flow.

With faster settlement, lower fees and robust security, pay-by-bank delivers real benefits to both merchants and consumers. Amid this shift, Newline is offering innovative tools with the backing of a major financial institution. Through Newline’s API-powered platform and dashboard, businesses can harness these advantages with ease and confidence.

To find out how your business can benefit from pay-by-bank, connect with the innovative and flexible payment solutions offered by Newline.