A financial specialist speaking on BBC Breakfast has raised concerns about the growing use of a payment method known as “Pay by Bank,” which is increasingly being adopted by major companies including Amazon and several airlines.
The payment option allows customers to make online purchases directly from their bank accounts without entering debit or credit card details. While the system is becoming more popular with businesses and some consumers, experts say it may come with fewer protections than traditional card payments.
Method
Pay by Bank works by connecting a payment directly to a user’s bank account. Instead of entering card numbers during checkout, the customer authorizes a bank transfer through their banking app or secure online banking system.
According to BBC financial specialist Peter Ruddick, the system essentially uses bank transfer technology in a streamlined format designed for online purchases.
This method removes the need to store or input card details and can make the checkout process quicker for some users.
Growth
The use of Pay by Bank has expanded significantly in recent years. Industry data shows that more than 36 million Pay by Bank transactions took place in the United Kingdom in January alone.
This represents an increase of around 4 percent compared with the previous month.
Large organizations have begun offering the option as part of their payment systems. Amazon introduced Pay by Bank as a payment option last month for purchases and Prime subscriptions. Other well-known companies using the method include Ryanair and Just Eat.
Government bodies have also adopted it. HMRC already accepts Pay by Bank for several types of payments.
Retail
One of the main reasons for the growing interest among businesses is the cost advantage.
Retailers often pay processing fees when customers use credit cards. These fees can accumulate across millions of transactions each year.
Estimates suggest that credit card processing costs UK retailers about £1.5 billion annually. Pay by Bank transactions typically involve much lower fees, which can be fixed rather than percentage-based.
| Payment Method | Typical Retail Cost |
|---|---|
| Credit Card | Higher processing fees |
| Debit Card | Moderate fees |
| Pay by Bank | Lower fixed fees |
Because of these savings, many companies are considering the system as an alternative payment option.
Protection
Despite the convenience, experts warn that Pay by Bank transactions may offer fewer protections for consumers compared with card payments.
When customers use a credit card in the UK, they are protected by Section 75 of the Consumer Credit Act. This law makes the card provider jointly responsible for purchases between £100 and £30,000 if something goes wrong.
Debit and credit card users can also benefit from chargeback protections. These allow banks to attempt to reclaim funds if a retailer fails to deliver goods or goes out of business.
These protections generally do not apply to payments made through direct bank transfers.
Consumer rights advocate Scott Dixon explained that this could leave customers with fewer options if a dispute arises.
Rights
Although Pay by Bank lacks some card protections, purchases are still covered by the Consumer Rights Act.
This law requires that goods must be:
- Fit for purpose
- As described
- Of satisfactory quality
However, enforcing these rights may sometimes require more effort from the consumer.
If a retailer refuses to provide a refund for faulty or misrepresented products, customers may need to pursue legal action through the small claims court. This process can be time consuming and may involve additional costs.
Advice
Consumer groups including Which? advise shoppers to consider carefully before using Pay by Bank for large or complex purchases.
Experts suggest avoiding bank transfers for high-value items such as:
- Holidays and travel bookings
- Electronics and appliances
- Vehicles and furniture
- Event tickets or hotel reservations
For purchases above £100, financial advisers often recommend paying at least part of the amount using a credit card. This ensures access to Section 75 protection.
For smaller purchases below £100, debit cards can still offer protection through chargeback schemes, which may allow banks to reclaim payments within about 120 days.
Response
Amazon has stated that customers using Pay by Bank still benefit from the company’s own protections.
According to the company, purchases sold directly by Amazon are covered by its standard return and refund policies. Orders placed with third-party sellers on the platform are protected through Amazon’s A-to-Z Guarantee.
Amazon also noted that Pay by Bank transactions fall under UK Payment Services Regulations, which can provide certain safeguards for up to 13 months.
The company added that the payment option offers benefits including quicker refunds and the ability to complete transactions without sharing card details.
As digital payment methods continue to evolve, Pay by Bank represents another option for consumers and businesses. While the system offers speed and cost advantages, experts suggest that shoppers should understand the differences in protection compared with credit or debit card payments before choosing how to pay.
FAQs
What is Pay by Bank?
A payment method that transfers money directly from a bank account.
Why are retailers adopting Pay by Bank?
It reduces transaction fees compared with card payments.
Does Pay by Bank offer Section 75 protection?
No, Section 75 only applies to credit card purchases.
Are Pay by Bank purchases protected by law?
Yes, they fall under the Consumer Rights Act.
