Consumers are being encouraged to understand their payment protections amid the growing popularity of ‘pay by bank’ options.
The method allows for direct, secure transfers from a bank account without needing card details or recipient information. However, Which? has highlighted a potential ‘protection gap’ if purchases go wrong.
While pay by bank is increasingly used for credit card payments, bill settlements, and retail purchases, Which? warns it lacks the Section 75 and chargeback protections associated with other payment methods.
Section 75 of the Consumer Credit Act can hold credit card companies liable for faulty or unfulfilled purchases, potentially allowing shoppers to claim refunds from their provider if the retailer fails to reimburse them.
People using a debit card or a credit card for purchases could also potentially get their money back via the voluntary chargeback scheme.
Which? said pay by bank is a “potential game changer” for businesses as they can sidestep card transaction fees and also benefit from receiving customer funds immediately.
There is also appeal for consumers too as refunds can be processed instantly, and card details are not shared when making a transaction – eliminating the risk of them being stolen or compromised.
People do have general purchase rights under the Consumer Rights Act, meaning that goods must be fit for purpose, as described and of satisfactory quality.
But Which? said these protections are not always easy to enforce and in some cases may end up with people needing to go to a small claims court.
People may also face difficulties in the event of a business going bust, particularly if there is an issue with a future-dated purchase such as a flight, a festival, or a household big ticket purchase such as a kitchen or a sofa, the consumer group said.
Jenny Ross, Which? Money editor, said: “Innovations like pay by bank present opportunities for businesses and consumers alike, but they’re not without risk, particularly as they lack 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, but 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.”
A spokesperson for banking and finance industry body UK Finance said: “There are a range of options for making payments online which provides customers with choice as to how they wish to pay. Different payment methods do come with different levels of protection and it’s worth being aware of these when shopping online, particularly when making higher value purchases.”
