What open banking payments are
Open banking payments, often branded Pay by Bank, let a customer pay you directly from their own bank account. The customer selects Pay by Bank at checkout, is redirected to their banking app, approves the payment, and the money moves to you over the UK's Faster Payments rail. No card network sits in the middle, so there are no card interchange fees and no card chargebacks. In the UK the framework is overseen by Open Banking Limited and the FCA, and it has grown quickly as large retailers added Pay by Bank options.
- Customer pays straight from their bank account.
- No card network, so no interchange fees or card chargebacks.
- Built on the UK Faster Payments rail and open banking rules.
How a Pay by Bank payment flows
At checkout the customer picks Pay by Bank and chooses their bank from a list. They are redirected to their own bank's app or website, where they log in and approve the payment with biometrics or a PIN. That approval is the strong customer authentication step, so you do not need a separate 3-D Secure flow. The bank sends the instruction over Faster Payments, the funds move to your account, and your provider sends you a webhook confirming success or failure.
- Customer selects Pay by Bank and picks their bank.
- Approval in the bank app is the SCA step.
- Funds move via Faster Payments and a webhook confirms status.
Where open banking fits best
Open banking performs strongly for higher-value, one-off and invoice-style payments where card interchange hurts margins and chargeback risk is unwanted. It also works for bill payments, government dues, and B2B invoices above about one thousand pounds. It is a weaker fit for low-value impulse buys and stored-card convenience, where cards still convert better. Most merchants run it alongside cards rather than replacing them.
- Strong for high-value, one-off and invoice payments.
- Useful for bills, B2B and regulated-sector dues.
- Keep cards for low-value and impulse checkouts.
Settlement and cost structure
Funds typically settle to your account in seconds to a few hours over Faster Payments, far faster than the one-to-three business days common with cards. Because there is no card network, you avoid interchange and scheme fees, and chargeback liability is minimal because the payment is irrevocable once authorised. Your provider still charges its own fee for the open banking service, so compare that against your card processing cost at your actual volumes.
- Near-instant settlement via Faster Payments.
- No interchange or scheme fees, very low chargeback risk.
- Your provider charges its own open banking service fee.
Integration routes
You can connect through a payment service provider that bundles open banking, or build a direct connection to a licensed payment initiation provider. The PSP route is faster to launch and handles the bank integrations for you. A direct integration gives more control but needs more engineering and a relationship with an FCA-authorised initiation provider. For most small and mid-size merchants, the PSP route is the practical starting point.
- PSP route: faster launch, provider handles bank integrations.
- Direct route: more control, more engineering effort.
- Most SME merchants start with a PSP.
Pre-launch checklist
Before you go live, confirm that your provider covers the UK banks your customers use, that your checkout shows Pay by Bank next to cards, and that your fulfilment waits for the paid webhook rather than assuming instant success. Test the full flow including expiry and failure handling, and make sure your accounting can reconcile an account-to-account payment that has no card reference. Finally, review the pricing.
- Confirm bank coverage and a visible Pay by Bank button.
- Fulfil on the paid webhook, not on redirect.
- Test success, failure and expiry paths.
Pricing note
Published pricing is for initial screening only; confirm the provider's official pricing page or a written quote before you go live. Open banking provider fees vary and are not the same as card fees, so screen any published rate and then confirm it on the provider's official pricing page or a written quote before launch.
- Open banking fees differ from card processing fees.
- Verify the live rate on the provider's official page.
Questions merchants ask
What is the difference between open banking and Faster Payments?
Faster Payments is the rail that moves the money between UK bank accounts. Open banking is the regulated framework and APIs that let a licensed third party initiate that payment on the customer's behalf. Pay by Bank uses open banking to start a Faster Payments transfer.
Do I need an FCA licence to accept open banking payments?
No. You do not need your own FCA payment licence to accept open banking payments. You connect through an FCA-authorised payment initiation provider or a PSP that holds that authorisation, and they handle the regulated initiation on your behalf.
How fast do funds settle?
Typically in seconds to a few hours over the Faster Payments rail. The exact timing can vary slightly by the customer's bank, but it is far faster than the one-to-three business days common with card settlements.
Can customers dispute or charge back an open banking payment?
Chargeback exposure is very low because the payment is authorised directly by the customer in their bank and is effectively irrevocable. If something goes wrong, the dispute is handled through the provider's process rather than a card chargeback scheme.
Is open banking good for subscriptions?
Single open banking payments are poor for subscriptions because the customer must approve each one. Variable Recurring Payments, a newer open banking capability, is designed for this, but broad merchant availability in the UK has been rolling out gradually, so check current support with your provider.
Will my customers recognise Pay by Bank?
Recognition is growing as large UK retailers added Pay by Bank in 2026, but it is still less familiar than cards. Present it clearly next to cards, explain that it pays from their bank, and keep cards available so no one is blocked at checkout.
What happens if a payment fails?
Failures are usually due to insufficient funds or a bank-side timeout. Your provider sends a failure webhook, and you should then prompt the customer to retry with a different method. Unlike a card decline, there is no expired-card scenario to manage.