Pay-by-bank isn't new, but the economics have never been more compelling. Direct bank payments cost a fraction of cards or checks, saving businesses up to 98 percent per transaction. Large billers figured this out years ago. Many mid-size utilities and local governments may be leaving money on the table.
The case for direct bank payments
Accepting pay-by-bank delivers across every dimension that matters to a finance team.
Lower fees
Transactions typically incur flat, low fees, or standard ACH processing costs, maximizing profit margins.
Accelerated settlement
Bypassing the traditional 2-3 day ACH holds, real-time networks like FedNow and RTP (Real-Time Payments) allow immediate, 24/7 B2B fund transfers and authorizations.
Automated reconciliation
Payment platforms match invoices to incoming transactions automatically, eliminating manual data entry and shortening the invoice-to-cash cycle..
Robust security
End-to-end encryption and bank-level authentication reduce the risk of check fraud and compromised payment data. Bank credentials are never shared.
Better cash flow
Immediate payment verification and guaranteed funds allow finance teams to better forecast liquidity.
Let’s do the math
Every transaction costs the company. Cards, checks, and even bank payments all carry a price tag. Payments experts understand this, and balance end-customer convenience with payment cost optimization. Here's what that looks like in practice, using a fictional mid-size utility we'll call UtiliCo.
Model assumptions:
- Bills are paid monthly
- Average payment: $300
- Monthly payment volume: 50,000 transactions
- Payment mix covers 84 percent of all payment types
Credit card payments: 42 percent of payments
Cards, including mobile wallets, are the most common payment method, and the most expensive to accept. Network fees rarely fall below 2 percent, and many mid-size utilities have little leverage to negotiate them lower. Convenience for the customer comes at a real cost to the business, which is why many utilities pass the fee on to the consumer.
21,000 card payments per month x $300 average = $6.3 Million processed via cards
Average network fee: 2.5%
Monthly card fees: $157,500
Annual cost = $1,890,000
Paper checks: 7 percent of payments
The cost of checks is mostly hidden in labor: sorting, recording, manual deposits, and reconciliation. That's before accounting for bounced checks.
3,500 checks per month
Average processing cost = $5
Monthly cost: $17,500
Annual cost = $210,000
Cash: 5 percent of payments
Cash looks cheap on the surface. It isn't. Storage, armored transport, labor for counting and depositing, and theft risk add up quickly, estimated between 4.7 and 15.3 percent of transaction value. A conservative 5 percent is used here. It’s worth noting that an estimated 15 percent of consumers pay bills in person, using third-party kiosk or bill-pay services. This figure reflects only those paying cash directly to the utility.
An estimated 15 percent of consumers pay bills in person. Peeling back the curtain, there’s a big caveat: Millions of cash-preferred consumers use third-party services like bill pay via in-person or kiosk to settle invoices. For this example, we’ll apply a conservative 5 percent paying cash directly to the utility.
2,500 cash payments per month
Average acceptance cost: 5%
Monthly cost: $37,500
Annual cost: $450,000
Pay-by-bank: 30 percent of payments
Direct bank payments, ACH transfers and direct deposit, are by far the lowest-cost option. Consumers connect their bank accounts once, and recurring auto-pay handles the rest. Guaranteed, on-time payments benefit both sides.
15,000 bank payments per month
Average ACH cost: $0.20 per transaction
Monthly cost: $3,000
Annual cost: $36,000
Adding a fee to pay-by-bank unlocks a new lever for payments processing. This can be a variable percentage fee or flat fee to offset the cost of processing, and decrease the overall expense for managing payments. Consumers will opt for the most convenient and lowest cost payment method.
What if even a small share shifted to pay-by-bank?
The numbers don't require a dramatic change to move the needle. If just 5 percent of card payments migrated to pay-by-bank, UtiliCo would save roughly $92,000 annually. At scale, even modest shifts in payment mix have a material impact on the bottom line.
Utilities can accelerate that shift by charging a modest fee for pay-by-bank, lower than the card surcharge, giving consumers a clear financial incentive to make the switch.
How to affect a change in payment behavior
Consumers follow the path of least friction and lowest cost. The goal is to make pay-by-bank the obvious choice.
Reduce initial friction. Pay-by-bank requires a one-time bank login to set up. A first-use discount or fee waiver can smooth that initial step and get users through enrollment.
Optimize the payment screen. Feature pay-by-bank prominently, and emphasize the simplicity of auto-pay enrollment. Once set up, the experience is as fast as a card tap.
Use plain language. "ACH" and "A2A" mean nothing to most consumers. "Instant bank payment" or "pay directly from your bank" land better, and build the trust that drives first-time use.
Lead with security. Consumers need to feel confident before connecting their bank account. Emphasize that their banking credentials are never stored or shared, account linking happens directly through their banking app, with no data handed off to third parties.
The path forward
The economics of pay-by-bank are hard to argue with. For mid-size utilities and local governments still relying heavily on cards and checks, the opportunity is straightforward: Reduce costs, settle faster, and improve cash flow visibility. The path to consumer adoption is a matter of removing friction, building trust, and letting users choose their best option.
