In the evolving landscape of digital commerce, a new payment method known as "pay by bank" has emerged, promising a streamlined alternative to traditional card transactions. This innovative approach allows consumers to transfer funds directly from their bank accounts to retailers, bypassing the need for credit or debit cards entirely. While it offers significant benefits in terms of speed and simplicity, there are critical considerations regarding consumer protections that shoppers must be aware of before opting for this method.
What Is Pay by Bank and How Does It Work?
Pay by bank is a digital payment solution that enables customers to make online purchases by authorising a direct bank transfer at the point of sale. Instead of entering lengthy card details, users can complete transactions with just a few clicks, often through secure banking apps or portals. This method has gained traction among both consumers and retailers in recent years, with major companies like Ryanair and Just Eat integrating it into their checkout processes. For retailers, the appeal lies in reduced transaction costs compared to card payments, while consumers enjoy a faster, more convenient shopping experience without the hassle of physical cards.
The Growing Popularity and Benefits
The adoption of pay by bank is on the rise, driven by its efficiency and ease of use. It eliminates the need for card details, reducing the risk of data entry errors and speeding up the checkout process. For everyday purchases, this can be a game-changer, allowing shoppers to complete transactions in seconds. Retailers benefit from lower fees, which can potentially lead to cost savings passed on to customers. However, as with any financial innovation, it's essential to weigh the advantages against potential drawbacks.
Key Consumer Protections at Risk
Despite its convenience, pay by bank comes with significant trade-offs in terms of consumer rights. According to consumer rights expert Scott Dixon, this payment method can weaken or remove two crucial protections: Section 75 of the Consumer Credit Act and chargeback schemes. Section 75 provides legal protection for purchases over £100 made with a credit card, holding the card issuer jointly liable with the retailer if something goes wrong. Chargeback, on the other hand, is a process offered by debit and credit card providers that allows customers to dispute transactions and seek refunds for issues like undelivered goods or fraudulent activity.
When using pay by bank, customers may forfeit these safeguards, leaving them vulnerable in scenarios where a seller goes bankrupt, refuses a refund, or delivers faulty products. In such cases, consumers could find themselves without recourse, effectively bearing the full financial risk alone. This highlights the importance of understanding when and how to use this payment method safely.
When to Use Pay by Bank and When to Avoid It
Scott Dixon advises that while pay by bank doesn't need to be avoided entirely, it's not suitable for all types of purchases. Before deciding to use this method, he recommends asking yourself a series of key questions:
- Do I trust this seller implicitly?
- Can I afford to lose the money if the purchase goes awry?
- Why is paying by debit or credit card not an option?
- Am I comfortable giving up my rights to chargeback or Section 75 protection?
If the answer to any of these questions is no, it's wise to take the extra time to pay with a card instead. Dixon particularly cautions against using pay by bank for high-value items such as holidays, electronics, cars, or sofas, as well as for future-dated purchases like concert tickets or hotel bookings. Transactions with unfamiliar sellers should also be approached with caution when considering this payment method.
Best Practices for Secure Online Shopping
To maximise protection, Dixon offers clear guidelines based on purchase value. For items costing more than £100, he emphasises that the strongest safeguard is to pay at least the deposit with a credit card, leveraging Section 75 protection. For purchases under £100, using a debit card is recommended to benefit from chargeback, which typically covers disputes for up to 120 days from the date of purchase. By adhering to these practices, consumers can enjoy the convenience of modern payment methods while minimising their exposure to risk.
In summary, pay by bank represents a significant step forward in online payment technology, offering speed and simplicity for both consumers and retailers. However, it's crucial to be mindful of the consumer protections that may be sacrificed in the process. By making informed choices and prioritising security for high-stakes transactions, shoppers can navigate this new landscape confidently and safely.
