How does ‘pay by bank’ work - and is it right for you?

Pay by bank is emerging as a popular alternative to traditional payment methods.

But it doesn’t offer the same purchase protections as paying by card.

So it’s worth weighing up the risks and asking if it’s right for you.

What is pay by bank?

Pay by bank allows you to send money directly from your bank account to a retailer or service provider. 

Unlike traditional card payments, you don’t need to enter your card number, expiry date, or CVV.

Instead, the transaction is authenticated through your online or mobile banking app.

One benefit for consumers is that it enables refunds to be processed straight away.

And since you’re not sharing your card details, there’s less of a risk that they could be compromised.

What are the possible problems?

Despite these benefits, consumer group Which? is concerned that pay by bank doesn’t offer enough protection to shoppers.

Traditional payment methods like credit or debit cards often come with built-in protections. 

Under Section 75 of the Consumer Credit Act, if you use a credit card to buy something costing between £100 and £30,000 and there’s a problem, such as the item not arriving or being faulty, you could claim a refund directly from your credit card provider.

Even debit cards often offer a chargeback option - a voluntary scheme where your bank might be able to reclaim money from the retailer’s bank if you didn’t get what you paid for.

But with pay by bank, these safeguards don’t apply. 

Of course, you’ll still be covered by general consumer rights under the Consumer Rights Act - which says goods must be as described, of satisfactory quality, and fit for purpose.

However, enforcing these rights isn’t always straightforward, and in some cases, you might have to take the matter to a small claims court.

Pay by bank ‘not without risk’

Jenny Ross, editor of Which? Money, acknowledged that pay by bank presents “opportunities for businesses and consumers alike”.

But she stressed that they’re “not without risk”, as consumers don’t get the “rigorous purchase protections you get when paying by card”.

“We’re calling on the regulator to act to ensure consumers can use pay by bank with confidence,” Ms Ross commented.

“In the meantime, we’d urge consumers to think carefully before using it to book events or make substantial purchases - for now, your good old-fashioned credit or debit card may be the best option.”

If you're buying something low-risk or inexpensive, pay by bank could be a convenient option.

But if you’re paying for a high-value item, or something time-sensitive like a plane or concert ticket, sticking with your credit or debit card could be safer.