For many merchants, the most compelling selling point of pay by bank is low transaction fees, which are 50-70% less than blended card interchange fees. However, that is just the first of many significant benefits.

In this case study, we will look at a major marketplace that decided to implement Link Money’s Pay by Bank due to its low transaction fees and ability to accept larger purchase amounts than credit cards. They ultimately accelerated their POC process as benefits in fraud reduction, operational costs, and customer UX became evident.

The marketplace and their challenge: converting high transaction value customers, while keeping processing costs low.

The marketplace has an ATV in the low hundreds of dollars. However, a significant minority of transactions are much higher, with high-ticket items selling for upwards of $10,000.

Selling such high-value items on the marketplace comes with additional challenges: 

1. Many potential buyers do not have a high enough credit card limit, even if they have sufficient funds for the purchase.

2. Transaction fees on cards are very expensive costs for the marketplace, particularly since larger transactions tend to be made with higher-cost cards (like Amex).

Why the marketplace partnered with Link Money

Initially, there were two key reasons why the marketplace wanted to leverage pay by bank. First, whereas credit cards interchange fees are 2.5-3%, Link Money’s fees are much closer to 1%. And second, Link Money offers a guarantee of funds up to $20,000 per transaction. This gave the marketplace extra confidence to know that not only would they be paying fewer fees, but also their risk profile would be low.

Accelerating the POC process due to compounding benefits

Integrating pay by bank was quick and seamless; the integration was completed within two engineering sprints. The original POC process was initially slated to last 12 weeks. However, early on in the POC, the marketplace witnessed several additional compelling benefits to pay by bank. As a result, they decided to shorten the POC and do a full go-live in six weeks. These incremental benefits were:

1. Enhanced payment security cuts fraud

Pay by bank is a more secure way to pay than cards, since the buyer authenticates directly with their bank; it is much easier for cards to get lost or stolen. The customer needs to approve the initial transaction with their bank credentials and OTP, as well as pass through Link Money’s proprietary fraud detection layer. For more information about the security of pay by bank, see this article.

In terms of what this means for fraud economics: while card chargebacks in the marketplace’s niche are typically 1%, the equivalent rate for pay by bank is 20-30 basis points. This is a drastic reduction in fraud losses on some of the marketplace’s highest transaction value items.

2. Significantly lower total cost of payments

While the initial decision to leverage pay by bank had more to do with lower headline processing costs, it became apparent that this was only part of the advantage. If you combine average interchange and chargeback costs for credit cards, you are looking at a total of close to 3-4% per transaction. With pay by bank, the marketplace benefitted from the following: 

- Transaction fees that are 50-70% below the rate for cards

- Chargeback costs that are 70-80% lower than cards

- Reduced operational costs in the form of employees spending significantly less time managing chargeback cases and pursuing fraud mitigation

The overall bottom-line result is that instead of the 3-4% per transaction in total costs on credit cards, pay by bank has an all-in cost of closer to 1%.

Millions already saved, and a new feature rollout will capture more volume

To date, Link Money has already saved the marketplace $3.3 million from cheaper processing costs and less fraud. Additionally, the AOV for pay by bank transactions of $700 is over double the overall AOV of $325.

Based on these strong results, they will launch a new cash-back incentive for pay by bank to drive further adoption of the payment method.

When the customer reaches the checkout page, they are given the option to pay by bank, with a cash-back discount that varies based on the transaction amount (with higher transaction amounts receiving larger discounts).