Consumer protections in ecommerce: a charged debate

Pay by Bank is exploding in use. In Europe, India, Brazil, UK, USA, millions and millions of people are using the payment method more and more. TrueLayer alone processes $100 billion worth of payments every year. Here in the UK, Pay by Bank is growing by about one million payments a month. In the EU, Pay by Bank payments are growing by 50% a year and will reach 30 Billion by 2028.

The more Pay by Bank grows and the more checkout share it takes in ecommerce, the more we see the incumbents rally around one particular issue: consumer protection. They claim Pay by Bank sees consumers less protected than when they use cards, which will ultimately hold back mass adoption.

This is a powerful and evocative claim. Policymakers and regulators will always open the door to a lobbyist or incumbent claiming to protect consumers, and nobody wants to be the person to take perceived protection away.

It's time to be frank about chargebacks

But it is important to be specific about what we’re saying. If we look more closely, the difference between Pay by Bank and cards is not consumer protection. It’s chargebacks. The ability to ask your bank to reverse a payment.

At TrueLayer, we believe consumer protection is critical, but it’s time to be frank about chargebacks. There seems to be a whole class of payment leaders who believe chargebacks are a fundamental driver of consumer preference. It’s important to challenge this perception. With Pay by Bank we have a rare opportunity to re-think payments from first principles; to build on the competition and innovation already introduced, and avoid weighing things down with legacy processes designed for a different time and an outdated form factor.

But first, an important fact: Pay by Bank is inherently safe, secure and protected.

The financial regulation that makes Pay by bank possible prioritises safety and security of payments. Pay by Bank does not involve sharing any card or security details online — so unauthorised transactions (where card details are stolen to make purchases), are a thing of the past. With Pay by Bank, if something goes wrong with your payment (eg wrong amount taken or duplicate payment), you have the exact same legal protections you have with any other payment option: you can get a refund from your bank.

If something goes wrong with a purchase, you are also protected. Merchants are required under the Consumer Rights Act to refund consumers if goods are not satisfactory. And thanks to highly competitive markets, merchants compete on customer satisfaction and therefore have strong refund policies in place so the legal step should rarely be necessary.

Why Pay by Bank should think differently about chargebacks

As a result of healthy, and often fierce, competition in the online space, merchants have invested in consumer satisfaction and consumer trust. In a world where consumers are already well protected by merchants themselves, it is crucial to ask whether replicating the same chargeback system of cards (and all of their downsides/costs) is a sensible approach.

This is especially true at a time when chargebacks are increasingly becoming a vector for fraud, rather than an accelerant of ecommerce.

I think there are three key reasons to challenge the idea that Pay by Bank needs the same chargeback mechanism to continue growing:

1. Consumer satisfaction is table stakes for merchants

With some of the world’s strongest consumer protection laws, companies in Europe and the UK have a legal obligation to resolve customer issues. These regulations ensure that UK and EU consumers are among the safest in the world, whether it’s the food they eat, the products they buy, or the services they use. This culture of accountability holds businesses to high standards, compelling them to address disputes effectively. Consumer protection is a legal requirement for participation in the market.

On top of this, businesses compete more fiercely than ever to win and retain customers. Over the last decade, retail has changed dramatically due to the rise of ecommerce.

In an era of intense ecommerce rivalry, stellar customer service is simply a hygiene factor for competing. Amazon, for example, answers calls within seconds and swiftly replaces faulty products, while Just Eat Takeaway issues quick refunds or credits for deliveries that are cold or late. Ultimately, merchants are not only bound by law but also by the pressures of competition, where consumer protection is as crucial as price in winning and retaining customers.

Pay by Bank responds to this modern retail environment by focusing on speed, security and instant refunds — all key expectations of ecommerce merchants and digital-first consumers — while keeping costs low.

2. Chargebacks were built in response to fraud, but now enable fraud.

Chargebacks were introduced by card schemes as a safety net against card fraud, as in the unauthorised use of cards or card details to make purchases. Mastercard itself says that in the US more than 80% of chargebacks still come from consumers who are victims of card-fraud. Unauthorised card fraud in the UK amounted to £277m in H1 2024.

Pay by Bank eliminates unauthorised card payments, as customers don’t need card details to make a payment. So the primary reason for chargebacks falls away.

Another reason to avoid chargeback is its vulnerability to ‘refund fraud’, where unscrupulous consumers claim to not recognise a charge, or claim they never received an item in order to get a refund. Research shows that nearly half (48%) of adults believe it is ‘reasonable’ to commit refund fraud. As a result refund fraud is estimated to account for 60-80% of all chargebacks with a profound impact on businesses, adding costs of approximately £128m for UK merchants, which are then passed back to honest consumers.

When something costs companies millions, it is consumers who end up footing the bill. In the same way that insurance fraud makes all of our premiums go up, refund fraud makes all of our prices go up.

3. Modern dispute resolution, not chargebacks

TrueLayer processes $100 billion worth of payments per year. More than 27 million Pay by bank payments are made every month in the UK. In the Netherlands, 1.3 billion transactions are processed through iDEAL every year, accounting for 73% of all Dutch online purchases. Spain’s Bizum has more than 26 million users and processed 1.5 billion transactions in 2023. None of these payment methods offer chargebacks despite huge consumer and merchant adoption.

At TrueLayer, we believe Pay by Bank already has a right to exist at the checkout and we will continue to improve it further to increase trust and confidence amongst businesses and consumers.

One area we are already looking at is merchant insolvency. This is ultimately about apportioning liability in a way which incentivises Pay Bank providers to act as gatekeepers of the Pay by Bank system. This is how card schemes work, where acquirers are incentivised to vet merchants they onboard, keep capital reserves and decline merchants with poor financials and to develop processes and strategies to be able to refund large amounts to consumers, if the worst case scenario arises.

The commercial framework currently being developed by industry (with the backing of the FCA) provides a perfect opportunity to explore this approach to liability, and incentivise innovation around insolvency protection.

The simplification of payments is underway

I love this image from SpaceX. It is the perfect illustration of simplification over time, the elegance of evolution. We all seem to agree that innovation is about simplifying the problem, questioning requirements and deleting unnecessary parts.

Payments are the engine of economies. But the global payments engine still looks like the engine on the left, and we are trying to get to the engine on the right.

By driving Pay by Bank, we are moving on this simplification journey. It is already reaping benefits for consumers: eliminating card fraud, lowering the cost of payments and goods, making it easier to get a refund. We must keep on this path, and not fall back to the complexities of the past. This is an evolving space. We will make sure Pay by Bank keeps improving for consumers and businesses.