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Not every payment has to run on a card. Open banking has made it possible for customers to pay a business directly from their bank account, in a couple of taps, often at a fraction of the cost of card processing. Known as pay by bank, it is one of the fastest growing ways to take payment in the UK. This guide explains how it works and where it fits.
In short. Pay by bank uses open banking to let a customer pay you straight from their bank account, approved in their banking app, with no card involved. Because it skips the card networks, it is usually cheaper than card payments, the money can arrive almost instantly, and there are no card chargebacks. It will not replace cards for every business, but it is a genuine lower cost option worth knowing about.
Pay by bank is built on open banking, the regulated framework that lets authorised providers connect securely to bank accounts with the customer permission. When a customer chooses to pay this way, they are handed to their own banking app to approve a payment to you, then handed back. The money moves as a direct bank transfer rather than a card transaction.
From the customer side it feels like a fast, secure app approval. From your side, the payment lands as a bank transfer, with none of the card scheme machinery in between.
Card payments carry interchange, scheme fees and a provider margin. Pay by bank skips the card networks entirely, so there is no interchange and no scheme fee to pay. What remains is a fee for the open banking provider that initiates the payment, which is typically lower, sometimes a small flat fee rather than a percentage. For higher value transactions in particular, where a percentage card fee grows with the sale, that difference can be significant.
✓ Money can arrive almost instantly through Faster Payments, helping cash flow.
✓ No card chargebacks, because a bank transfer authorised by the customer is not a card dispute.
✓ Strong security, since the payment is approved inside the customer own banking app.
✓ Lower fraud risk, as there are no card details to steal or key in.
✗ Not every customer is comfortable with it yet, so it works best offered alongside cards.
✗ Less suited to quick in person retail at the till than to invoices, online checkout and larger payments.
Pay by bank shines for certain payments. Invoices, where you can include a pay by bank link and be paid instantly rather than waiting for a transfer or a card payment. Online checkouts, as a cheaper option alongside cards. Higher value payments, where percentage card fees bite hardest. Account top ups and deposits, where speed and low cost matter.
It is less of a natural fit for quick, low value, in person sales, where tapping a card is still the fastest thing for the customer. That is why most businesses use it as an addition to card acceptance rather than a replacement.
Imagine a 2,000 pound invoice. On a card, even a keen rate of around 1.3 percent would cost roughly 26 pounds, and a premium card could cost more. Through pay by bank, a small flat fee, often a pound or two, might cover it, and the money could arrive in seconds rather than in a few working days. For a business sending large invoices regularly, offering pay by bank alongside card is a simple way to cut the cost of being paid on exactly the transactions where card fees hurt most.
Pay by bank is not about ripping out your card machine. It is about offering a cheaper, faster option where it makes sense, particularly on invoices and higher value payments. Give customers the choice, and let the lower cost method carry the transactions it suits best.
1. Check your providers. Many payment providers, invoicing tools and checkouts now offer pay by bank, so you may be able to switch it on without a new relationship.
2. Use it on invoices first. Adding a pay by bank link to invoices is the easiest, highest value place to begin.
3. Offer it alongside cards. Present it as an option, not a replacement, so customers who prefer cards still can.
4. Compare the fees. Weigh the pay by bank fee against your card cost on the transactions you take most, to see where it saves you most.
A way for customers to pay you directly from their bank account using open banking, approved in their banking app, with no card involved. The money moves as a bank transfer.
It skips the card networks, so there is no interchange or scheme fee. You pay a lower open banking provider fee instead, often a small flat charge rather than a percentage.
Not in the card sense. Because it is a bank transfer the customer authorised, there is no card chargeback process, though you should still handle genuine refunds fairly.
Yes. It uses regulated open banking and the payment is approved inside the customer own banking app, with no card details shared, which also lowers fraud risk.
Not for most businesses. It works best on invoices, online and higher value payments, so most firms offer it alongside cards rather than instead of them.
No. A direct debit is a recurring pull you set up in advance to collect regular payments. Pay by bank is a one off payment the customer actively approves in the moment through open banking, so it suits invoices, checkouts and one off larger payments rather than ongoing subscription billing.