JPMorgan

Mastercard and JPMorgan Launch Pay By Bank-Streamlining ACH Payment

Posted: February 8, 2023 | Updated:

In the world of payments, the need for efficiency is greater than ever. Transactions, where someone hands a cashier a bill and receives change, are not only slow, but they’re also expensive. That’s why more businesses are adopting digital payments as an alternative to cash, cards, and coins.

Between mobile wallets like Apple Pay, Google Pay, and Samsung Pay, contactless payment methods like EMV-enabled stickers and NFC-enabled POS terminals, and peer-to-peer payment apps like Venmo and Zelle, consumers now have plenty of options when it comes to making fast, frictionless payments. Unfortunately, the same cannot be said about the numerous third-party processors that must get involved for many of these services to work seamlessly together.

To address this gap in the market for streamlined payments between financial institutions and merchants, known as “last mile logistics,” JPMorgan Chase launched a new Pay by Bank program.

What is Pay By Bank?

Pay By Bank is an initiative from JPMorgan Chase that allows merchants to accept credit card payments through the bank’s payment gateway. Instead of using merchant services provided by a third-party processor, businesses with a Chase account can use this new feature to accept payments from Chase cardholders without ever having to touch a credit card.

Pay By Bank allows Chase cardholders to pay with their bank account rather than a credit card, making for a seamless and frictionless payment experience. While the feature is currently only available for Chase cardholders, Pay By Bank also has the potential to streamline payments for people who don’t bank with Chase.

How Does Pay By Bank Work?

When Chase customer uses Pay By Bank to make a payment, their funds are instantly transferred from their bank account to the merchant. Card data is never stored on the merchant’s POS system, and no transaction details are ever transmitted to Chase.

Using tokenization, Pay By Bank generates a unique payment code for each transaction. This tokenized payment method means merchants never receive customer account information, providing added security and privacy. Payment codes are generated when a customer initiates a transaction, so they can’t be used again.

Because Pay By Bank processes funds directly between a customer’s bank account and the merchant, it doesn’t require card readers or NFC terminals. Merchants can accept payments from all customers, regardless of whether they have a credit or debit card.

Benefits of Pay By Bank

Pay By Bank
  • Instant, real-time payments – Unlike credit cards, funds move directly from a customer’s bank account to a merchant’s bank account in real-time. This means businesses don’t have to wait weeks to receive payment, and there’s no risk they’ll be charged a fraudulent charge
  • No risk of chargebacks – Unlike credit cards, bank-to-bank transfers don’t require a customer to dispute a charge. This means there’s no risk of chargebacks, which can greatly reduce the profit a business makes from each sale
  • No need for card readers or NFC terminals – If a customer doesn’t have a credit or debit card, they can still use Pay By Bank to make a payment. This eliminates the need for card readers or NFC terminals, which may be incompatible with certain devices, such as Apple devices

Drawbacks Of Pay By Bank

  • No rewards or cash back – Unlike credit cards, Pay By Bank offers no rewards, cash back, or frequent flyer miles. This means businesses that offer products and services that are often purchased by frequent travelers, such as airlines and hotels, will have to find other ways to incentivize customers
  • Limitations on certain services – While credit cards can be used to purchase just about anything, Pay By Bank is limited to online and phone purchases. This will make it difficult for businesses that rely on in-person sales to accept payments
  • Requires a Chase account – While Pay By Bank is a convenient way for Chase customers to make payments, it’s not an option for people who don’t use this bank

Is Pay By Bank A Good Solution For Your Business?

Suppose most of your customer’s bank with Chase, Pay By Bank is likely a good solution for your business. However, if most of your customers bank elsewhere, Pay By Bank may not be a good choice. Instead, consider a partner processor that offers many payment options, including bank-to-bank transfers.

Partner processors work with a variety of financial institutions to seamlessly accept payments from a wide range of customers. Partner processors also commonly offer a variety of value-added services, such as automated fraud detection and chargeback mitigation, that help merchants keep costs low and profit margins high.

When it comes to regular payments like rent, utilities, transactions to the government, education, insurance, and universal healthcare, where ACH is counted as the principal payment channel, Pay-by-Bank has a significant amount of untapped potential that billers may leverage to make life easier for their customers.

Billers whose customers already paid with ACH can integrate the Pay-by-Bank solution offered by J.P. Morgan on their current payment page. Customers can choose to “Pay-by-Bank” when they are checking out. At this point, they could be urged to discover the bank, verify themself using the authentication process that is familiar to them from their bank (such as a biometric scanner), and share their account details with JPMC so that the payment can be processed on the biller.

This year, J.P. Morgan, as well as Mastercard, are managing their Pay-By-Bank service with a limited number of merchants and billers in the United States. They anticipate expanding the service in 2023.

Conclusion

Pay By Bank is a new and convenient way for Chase cardholders to make payments. While this feature will likely appeal to many customers, it’s not an option for those who don’t bank with Chase. If most of your customers bank with Chase, Pay By Bank will likely be a good solution for your business.

Open banking allows businesses and individuals to share their information safely. These experiences range from new payment methods to protection and zero-friction giving, bringing the pledge of digitalization to more individuals. Pay-by-Bank is another innovation that open banking has made possible.

With the purchase of Vocalink in 2017, Mastercard was able to bring its years of experience and knowledge in the payments industry into account-based transactions. However, if most of your customers bank elsewhere, Pay By Bank may not be a good choice. Instead, consider a partner processor that offers many payment options, including bank-to-bank transfers.

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