As traditional payment methods give way to more efficient, secure, and seamless alternatives that better serve both businesses and consumers, open banking has emerged as a solution to facilitate pay by bank — also known as account-to-account (A2A) payments — and represents a significant advancement in payment technology.

Projections indicate A2A payments could reach $200 billion in consumer-to-business transactions by 2026, alongside the potential to grow when factoring in other types of payments. A2A payments give businesses the ability to address long-standing friction points in financial transactions while providing enhanced security and cost benefits.

Despite the clear advantages of pay-by-bank solutions, several key challenges have historically limited widespread adoption. Understanding these obstacles is necessary to grow pay by bank and embrace the future of digital payments.

Prioritizing Efficiency 

The first significant hurdle involves the process of sharing and managing bank payment details. Customers have traditionally faced cumbersome experiences when providing their banking information, often needing to manually enter account numbers or undergo lengthy verification processes for each new payment relationship.

Open banking technology effectively addresses this challenge by creating a seamless ecosystem for secure data sharing. Once customers save their information with one financial institution, they can selectively share these details with authorized third parties through secure APIs. This streamlined approach eliminates the need to repeatedly input sensitive banking information, significantly reducing the time required for account verification and payment setup. 

Updating Security 

Security concerns represent another critical adoption barrier, particularly regarding smaller financial institutions’ internal controls. However, modern open banking infrastructure employs sophisticated security measures that can enhance payment protection when compared to traditional methods. 

Through tokenization, sensitive financial data is replaced with unique identifiers during transmission, substantially reducing the risk of exposure. Additionally, real-time transaction monitoring and detailed payment history can provide unprecedented transparency, enabling both businesses and customers to instantly track and verify transactions.

Embracing Digital Payments

The importance of modernization for businesses presents a third significant challenge in payment evolution. In a recent study, the Federal Reserve notes a shift toward digital payments: “Businesses reported greater overall operational efficiency and customer satisfaction when they offer digital payment options that include faster/instant payment services.” This highlights the growing demand for flexible payment solutions. In fact, businesses that continue to rely on legacy payment systems risk falling behind competitors who offer varied and modern options like buy now, pay later (BNPL) and instant payments. 

Beyond meeting customer expectations, modernization through open banking enables businesses to leverage instant payment networks such as the RTP network and FedNow Service, providing immediate access to funds and transaction data that helps reduce payment risk.

The benefits extend beyond basic transaction processing. By adopting open banking and pay-by-bank solutions, businesses gain access to rich financial data that can drive better decision-making and risk assessment. This enhanced visibility can enable more accurate fraud prevention while supporting innovations in financial services. 

The transformation toward open banking and pay-by-bank solutions particularly impacts recurring payments and high-value transactions. Data indicates 94% of consumers have set up paperless billing for at least one of their recurring bills, demonstrating a preference for digital options for regular bills and subscriptions. When paired with enhanced security and reduced processing fees, this widespread adoption can result in increased adoption of pay-by-bank options in real estate, healthcare or other industries that process large purchases.

Financial institutions and businesses implementing these solutions must prioritize user experience while maintaining robust security protocols. This includes offering clear consent mechanisms for data sharing, providing real-time transaction status updates and ensuring seamless integration across different banking platforms. The standardization of APIs and security protocols continues to evolve, making it increasingly straightforward for businesses to implement and maintain these digital payment solutions.

Implementing Innovative Solutions 

The financial services industry stands at a pivotal moment where technology, security and user experience converge to reshape payment processes. The combination of open banking and pay-by-bank capabilities promises to further streamline financial operations while opening new opportunities for innovation. As more businesses recognize the competitive advantage of offering modern payment options, those that move decisively to implement these solutions position themselves to meet evolving customer expectations while benefiting from improved operational efficiency and reduced costs.