Credit card and debit cards have been default payment methods of choice in USA for nearly 4 decades now. However, we are seeing a shift towards pay by bank this year and we will see more of it in 2025.

Walmart ended their relationship with Capital One for their own branded credit card. This was a bitter breakup that involved Capital One suing Walmart, though the Walmart eventually prevailed. Walmart now supports “Pay By Bank” option in their payment options.

The advantages of such approach is that these transactions involve very little fees as there is little chance of chargebacks and frauds. People can only spend money they have which works really well for low value transactions.

Today only large merchants like Walmart have this capability as it involves building significant amount of payment rails with many major banks. Unlike ACH or other payment methods, this money is debited in real time and hence uses new payment rails.

Stripe which is a leader in payment processing space has since set their eyes on this new area and is going to launch Pay By Bank feature in 2025 from what we hear. Stripe does understand this space well as their do support this in international markets like India and UK. India which has a central bank provided rails called UPI which makes it very easy to move money across bank accounts in real time. United States currently has a similar system called FedNow supported by Fed but its adoption is still very slow. Today Chase is the only large bank that supports FedNow with Bank of America planning to join in 2025. Citigroup, Wells Fargo and Capital One are yet to reveal their plans to join FedNow.

Can Pay by Bank put up a big challenge to Credit cards? The consumers who love Credit Card rewards and Perks will have any reason to move to this new system ? Can a new rewards system be developed around bank payments ? All this remains to be seen an presents both challenges and opportunities for the fintech world.

Very likely we will see rise of new companies around this feature.