Pay by Bank payments are gaining traction across UK retail, with transaction volumes through open banking infrastructure jumping 65% year-on-year to reach £8.5 billion in the first half of 2024. This direct bank-to-merchant payment method is positioning itself as a serious alternative to traditional card networks, potentially reshaping how Britons pay for goods and services whilst delivering tangible cost savings to businesses.
The technology operates through open banking frameworks mandated by the Competition and Markets Authority, creating secure direct channels between consumer bank accounts and merchant systems. When customers select Pay by Bank at checkout, they authenticate transactions directly through their banking app or online portal, typically using biometric verification such as fingerprint or facial recognition technology.
The financial mechanics present compelling advantages for retailers. Traditional card transactions carry multiple fee layers—interchange fees, scheme fees, and processing charges—typically costing merchants between 0.8% and 2.9% per transaction. Pay by Bank significantly reduces these costs, with fees often capped at a flat rate structure that can deliver savings of up to 70% on payment processing for high-volume retailers.
For consumers, the system streamlines the payment experience whilst potentially enhancing security protocols. Direct bank authentication eliminates the need to share card details with merchants, reducing exposure to data breaches. Transaction processing can also accelerate refund procedures, as funds transfer directly between bank accounts without intermediary settlement periods that typically delay card refunds by 3-5 working days.
However, adoption remains concentrated among early-adopting retailers and digital platforms, with mainstream integration still developing. Consumer protection represents a critical consideration: whilst Pay by Bank offers robust authentication security, it lacks the comprehensive safeguards of Section 75 of the Consumer Credit Act, which protects credit card purchases above £100 against merchant failure or non-delivery of goods.
This protection gap means consumers must rely on chargeback schemes or merchant refund policies for dispute resolution—mechanisms that vary significantly in scope and reliability. The Financial Conduct Authority continues monitoring these developments as part of broader open banking oversight, balancing innovation incentives with consumer protection requirements.
Treasury officials view open banking growth as integral to maintaining London's fintech competitiveness, particularly as payment innovation accelerates across European markets. As integration expands, British consumers will increasingly face strategic choices between the convenience of direct bank payments and the established consumer protections of traditional card networks.
Source: Money Saving Expert