Legacy Infrastructure Won’t Cut It in a Pay-by-Bank World, Says Nuvei

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For businesses of all sizes, from agile startups to sprawling enterprises, cash flow is the lifeblood of their operations.

Robust cash flow is inextricably linked to the technological advancements witnessed in the payments sector over the past five to six years.

Pay by bank is poised to become a cornerstone of modern financial operations, Ed Dean, vice president of product at Nuvei, said in an interview with PYMNTS.

By facilitating quicker money movement, pay by bank allows businesses to gain a clearer, more immediate picture of their financial standing. This increased visibility, coupled with the inherent confidence that pay by bank provides, empowers companies to make more informed decisions regarding their liquidity.

Dean used the analogy of gaming consoles to explain the ongoing transformation in payments, saying that “if you didn’t upgrade your console, you couldn’t play the newest games.” Just as the gaming world evolved from the original Nintendo Entertainment System (NES) to Super Nintendo, Wii and Switch, the payment landscape has progressed from ACH to same-day ACH, then to real-time payments, with request for payment (RFP) on the horizon.

All these advancements are built upon the concept of account-to-account payments, with pay by bank serving as the “newest evolution” in this progression. There’s a need to upgrade infrastructure and connectivity to get there.

“Merchants need ERPs to support the newest consoles, if you will, because if you don’t have the right tools, you can’t play the game,” Dean said, adding that “different formats, different rules, real-time payments, SEPA, Pix makes it difficult to consolidate data.”

Payment providers, including Nuvei, offer solutions to instill confidence in fund movement, he said.

The successful expansion of pay by bank will require a collective “community” effort, involving payment providers, ERP systems, eCommerce websites, processors, independent software vendors (ISVs) and gateways all working in concert to support pay by bank, Dean said.

The adoption of pay by bank, particularly among consumers, is poised for a “natural progression” through various use cases, leading to a “viral effect,” Dean said.

While consumers are generational in their payment preferences, pay by bank offers an alternative to traditional methods like debit cards, especially within the eCommerce space, where ACH previously had limited traction.

When consumers engage with a merchant through pay by bank, they are essentially introducing their bank as a “trusted partner” into the transaction, Dean said.

A key advantage for consumers is the subsequent streamlining of future transactions. Once a consumer has completed an initial pay-by-bank interaction, the merchant is likely to remember them, enabling seamless or “one-click” experiences for subsequent purchases, he said.

This frictionless process builds confidence, encouraging consumers to use the method again with the same merchant and eventually with others who adopt it, fostering a gradual yet steady growth in adoption, particularly among younger demographics.

Beyond eCommerce, Dean pointed to the utility sector as an example of pay by bank’s natural progression.

When a new resident signs up for utilities, providing information including account and routing numbers, pay by bank can be used to establish a secure, trusted relationship. This move transforms pay by bank from a consumer “want” (as in eCommerce purchases) to a fundamental “need” in domestic transactions, he said.

B2B payments, traditionally reliant on methods like ACH, are ripe for re-examination, with pay by bank offering solutions to inherent frictions. Dean identified the primary benefits pay by bank brings to the B2B community, particularly concerning large-ticket transactions.

For businesses, particularly in the B2B context, “confidence in the cash flow is the ability that I know who I’m sending it to,” he said

This assurance of money reaching its intended destination swiftly and securely is invaluable in mitigating risk and optimizing financial pipelines, he said.

Pay by bank enhances the ability to verify a vendor, introducing what Dean termed a “light KYC” (know your customer) process. The enhanced confidence directly translates to faster and more secure payments.

Despite its advantages, pay by bank has experienced a slower adoption rate in the United States compared to other regions. Overcoming this hurdle requires a concerted effort to address integration challenges and educate consumers and businesses, he said.

For merchants, the primary incentive to adopt pay by bank often comes down to economics. Account-to-account payments typically offer an advantage, Dean said.

However, for consumers, the financial benefit may not be as immediately apparent, as the money ultimately comes from their bank accounts regardless of the payment method.

This is where incentives, such as “convenience fee avoidance,” can play a role in encouraging consumer adoption, he said.

Looking ahead, pay by bank’s success lies in its ability to elevate ACH, into what Dean called a “new world” where consumers feel comfortable and confident because it “works on every level … it’s a new generation of payments for a very old payment rail.”

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