Mastercard U.K. bets big on Pay by Bank in 2020

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Mastercard's U.K. Pay by Bank service has been slow to get off the ground since its 2016 launch. But Mastercard predicts Pay by Bank will see significant adoption in 2020 due to the partnerships it has established with banks and processors, and the popularity of mobile banking among Britons.

Pay by Bank enables U.K. consumers to pay for goods and services from bank accounts via mobile banking apps or, if using a PC, via online banking. Pay by Bank leverages the U.K.’s Faster Payments network, which is operated by Vocalink on behalf of retail payments authority Pay.UK. Mastercard acquired Vocalink in 2016.

Over the last two years, Mastercard has been signing up banks, e-wallet providers, payment service providers, processors, and acquirers to promote Pay by Bank to their merchants. These include Barclays, HSBC, Yoyo Wallet, Global Payments, Wirecard, Worldpay and Barclaycard, which processes half of all U.K. card transactions.

Because users don’t disclose their payment credentials to merchants, and are authenticated through their mobile banking app using biometrics or one-time codes, Pay by Bank helps online merchants comply with the two-factor authentication requirements of Secure Customer Authentication. SCA will be mandatory in the U.K. from March 2021.

“For e-merchants, SCA compliance is a major issue,” said Suren Nawalkar, senior vice president, business development at Mastercard. “Pay by Bank will remove the burden of compliance with SCA as it uses banks’ authentication processes, and reduce merchants’ fraud risk. Also, merchants accepting Pay by Bank will pay lower processing fees than for credit cards.”

Consumers can see which account they are paying from in their banking app, and their balance is updated immediately. Pay by Bank’s governance structure for disputes and chargebacks is the same as for debit cards.

Adoption

Mastercard and its partners’ challenge is to persuade British online shoppers to migrate from cards to Pay by Bank.

“How merchants and banks promote Pay by Bank to consumers will vary,” Suman Hughes, director of communications at Mastercard U.K., said in an email. “Some will lead with the safety and security of the service, others with the convenience it offers, and some simply with the user experience. Some merchants may also offer incentives to consumers to use Pay by Bank, and there are several consumer-facing merchant campaigns in the pipeline over the coming months.”

Currently, Mastercard is conducting a B2B campaign for Pay by Bank targeting merchants.

The popularity of bank-centric e-payment services such as the Netherlands’ iDeal and EBA Clearing’s Pan-European MyBank indicates that, if effectively promoted to consumers and merchants, Pay by Bank could attract a following.

In 2019, the total value of online bank account payments occurring via MyBank reached €15 billion, EBA Clearing says; while in 2018, 525 million online payments were made with iDEAL, according to iDeal’s operator Currence.

U.K. consumers have taken to online and mobile banking, which could be good news for Pay by Bank.

“50% of e-commerce in the U.K. now takes place on mobile devices,” said Nawalkar. “As people are using mobile banking apps a lot more, with 5 million mobile log-ons a day in the U.K., it’s a natural extension to also use them for merchant payments.”

According to banking industry association UK Finance, 72% of U.K. adults used online banking and 48% used mobile banking in 2018. There were a total of 2 billion U.K. remote banking payments processed via Faster Payments or cleared in-house by banks during 2018.

“Launching Pay by Bank in the U.K. makes sense,” said Sarah Grotta, director of Mercator’s debit and alternative products advisory service. “Consumers won’t be missing out on traditional credit card rewards since, due to a low-interchange environment in the U.K., few cards offer U.S.-style rewards,”

Rollout

“In 2018, we were developing the proof of concept for Pay by Bank and marketing the service,” Nawalkar said. “2019 was a year of laying the foundations and getting the ecosystem up and running. We’re now in a good position to accelerate the scale of Pay by Bank.”

At the end of 2019, Pay by Bank was live with seven processors and acquirers, which collectively brought the service to over 200 mostly smaller merchants.

“This year we’re looking at onboarding larger tier 1 merchants in addition to more banks,” said Nawalkar. “We’re targeting around 100 major U.K. e-merchants who account for 50-60% of the U.K. e-commerce market.”

In 2020, Pay by Bank will go live with an additional eight processors, according to Nawalkar. “By the end of 2020, through our acquirers, we should have access to around 300,000 U.K. e-merchants,” he said.

Pay by Bank is already live with HSBC U.K.’s mobile banking app and with Barclays’ Pingit service, which means that around 5 million U.K. consumers have access to the service.

Pingit, originally developed only for Barclays customers, is a mobile payments and P2P transfer app that can be used by any U.K. bank’s customers and is integrated with Pay by Bank for merchant payments.

Barclays said last year it would roll out Pay by Bank to its merchant network and embed the service in its mobile banking app, which is used by 6 million customers. The advantage of embedding Pay by Bank in a bank’s mobile app is that the bank’s mobile customers are automatically enrolled in Pay by Bank.

“We expect Barclays to add Pay by Bank to its mobile app later this year,” said Nawalkar. “Once Barclays goes live, by the end of 2020 we’ll have around 12 million mobile bank users automatically enabled to use Pay by Bank. There are 30 to 35 million mobile banking users in the U.K., so we’ll have over 30% of all mobile banking users in the Pay by Bank ecosystem.”

In October 2019, Mastercard signed an agreement with four U.K. e-commerce retailers owned by retail chain WHSmith — WHSmith.co.uk, gift card creation site Funky Pigeon, Cult Pens, and The Card Gallery — to offer Pay by Bank to their customers. The WHSmith e-commerce sites are expected to go live with Pay by Bank by mid-March.

Pay by Bank’s primary use case is for e-commerce purchases, although Mastercard has developed a capability for the service to be used for in-person payments, for example paying a tradesperson who comes to a customer’s home.

Once Mastercard’s integration with Yoyo Wallet goes live, the 1.7 million Yoyo users will be able to use Pay by Bank in U.K. coffee shops and other retailers that accept Yoyo such as Caffè Nero and Soho Coffee Co. Yoyo integrates with banks’ mobile apps to display receipts and loyalty points to customers.

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Online payments Mastercard U.K. Online banking
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