Open Banking allows UK customers and businesses to securely share payment-account information or initiate payments through regulated third-party providers with their consent.
For merchants, one of the most important uses is payment initiation — often presented at checkout as an Open Banking payment, bank payment or Pay by Bank option.
Instead of entering debit or credit card details, the customer can authorise a payment directly from an eligible bank account.
Open Banking can therefore sit alongside:
- debit and credit cards;
- digital wallets;
- BNPL;
- Direct Debit;
- payment links;
- invoice payments; and
- other alternative payment methods.
However, Open Banking is not simply “a cheaper card payment”.
It uses a different payment journey, different regulated providers and different processes for authentication, settlement, refunds, recurring payments and disputes.
This guide focuses on what Open Banking means for businesses accepting payments and what merchants should compare before adding Pay by Bank or account-to-account payments to their payment setup.
What is Open Banking?
Open Banking allows customers to give regulated providers permission to access certain payment-account information or initiate payments from their account.
The customer remains in control of the permission being given.
For businesses, two important regulated activities are:
Account Information Services
Account Information Service Providers, or AISPs, can access account information with the customer's explicit consent.
This can support services such as:
- account aggregation;
- financial-management tools;
- affordability or income analysis;
- accounting integrations; and
- other data-led financial services.
Payment Initiation Services
Payment Initiation Service Providers, or PISPs, can initiate a payment order from a customer's payment account with the customer's consent and authentication.
For merchants wanting to accept Open Banking payments, payment initiation is normally the more relevant part of the framework.
Open Banking data and Open Banking payments are not the same thing
This distinction is important.
Account Information Services involve a customer giving permission for regulated providers to access selected account information.
Payment Initiation Services involve a customer giving permission for a regulated provider to initiate a payment from their account.
A merchant that simply wants customers to pay from their bank account does not necessarily need all of the account-data functionality associated with Open Banking.
The requirement may simply be a payment-initiation service integrated into the merchant's checkout, payment link, invoice or software platform.
How does an Open Banking payment work?
A typical ecommerce payment journey can look like this:
- The customer reaches the merchant's checkout.
- They choose the Open Banking or bank-payment option.
- The customer selects their bank.
- They are passed into their bank's authentication environment or app.
- The customer reviews and authorises the payment.
- The regulated payment-initiation provider submits the payment instruction.
- The customer is returned to the merchant journey.
- The merchant or provider receives payment-status information.
The customer does not normally need to manually enter the merchant's sort code, account number and payment reference.
The payment details can instead be pre-populated as part of the payment-initiation journey.
This can help reduce errors associated with manually entered bank transfers and provide the merchant with better payment-status information.
What is Pay by Bank?
Terms such as Pay by Bank, bank payment and Open Banking payment are commonly used by payment providers to describe customer journeys where a payment is authorised directly from a bank account.
The precise technology and commercial model can differ between providers.
A merchant should therefore establish whether a product uses:
- regulated Open Banking payment initiation;
- another account-to-account payment arrangement;
- a provider's proprietary bank-payment infrastructure; or
- a combination of technologies.
The product name alone does not explain the complete payment architecture.
Who regulates Open Banking payment providers?
Payment initiation and account information services are regulated activities in the UK.
The Financial Conduct Authority is responsible for the regulation and registration of relevant providers under the Payment Services Regulations 2017.
A Payment Initiation Service Provider needs the appropriate regulatory status to provide payment-initiation services.
Merchants evaluating an Open Banking provider should check the provider's regulatory status rather than relying only on marketing claims.
This can be checked through the FCA Register and relevant Open Banking ecosystem information.
Does a merchant need FCA authorisation to accept Open Banking payments?
Not simply because it offers a payment option supplied by an appropriately regulated Open Banking provider.
A merchant can integrate a payment-initiation service in much the same way that it integrates other third-party payment services.
The regulated provider performs the payment-initiation activity.
However, the position can be different if the business itself intends to provide regulated payment-initiation or account-information services rather than simply accepting payments for its own goods or services.
Businesses building payment products for third parties, platforms or other merchants should take appropriate regulatory advice rather than assuming the merchant exemption applies to their model.
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Open Banking payments vs card payments
Open Banking payment initiation and card acquiring are different payment models.
Card payment
A card transaction normally involves the customer's card issuer, card scheme, merchant acquirer and other payment infrastructure.
Open Banking payment
A payment-initiation provider initiates a payment from the customer's eligible bank account after the customer gives consent and authenticates with their bank.
This means the two methods can differ in:
- payment credentials;
- authentication;
- pricing;
- dispute processes;
- refunds;
- settlement;
- reporting; and
- provider regulation.
For many merchants the question is not whether Open Banking should replace cards.
It is whether account-to-account payments provide a useful additional route for particular customers or transaction types.
Are Open Banking payments instant?
Open Banking can provide a fast payment-initiation and confirmation journey, but merchants should be careful about treating every transaction as identical to instant final settlement.
The customer payment, payment status and the merchant's access to funds can depend on:
- the underlying bank-payment rail;
- customer bank;
- provider;
- payment status;
- provider settlement model;
- merchant account structure; and
- reconciliation process.
A provider may allow the merchant to see confirmation that a payment has been initiated or completed quickly while the merchant's own finance process still needs to reconcile that transaction correctly.
Businesses should therefore ask providers exactly what payment confirmation means and when funds become available to them.
What do Open Banking payments cost merchants?
There is no single standard Open Banking transaction fee.
Providers may charge using:
- a fixed fee per payment;
- a percentage fee;
- a blended commercial model;
- monthly platform charges;
- minimum commitments;
- API or integration charges;
- refund fees;
- international charges where relevant; or
- bespoke enterprise pricing.
Merchants should not compare an Open Banking headline fee with a card-processing headline rate without understanding what is included in each.
The comparison should consider:
- transaction cost;
- gateway costs;
- integration;
- fraud and risk tools;
- refunds;
- settlement;
- failed payments;
- reconciliation;
- customer adoption; and
- the commercial value of the payment method.
For wider online-payment costs, see our Payment Gateway Fees guide .
Open Banking and Strong Customer Authentication
The Open Banking payment journey uses the customer's bank authentication environment.
The customer gives explicit consent to the payment-initiation provider and authenticates the payment through the account provider.
Depending on the bank and device, that authentication could involve methods such as:
- banking-app authentication;
- biometrics;
- device-based authentication;
- passcodes; or
- other methods supported by the bank.
The merchant does not normally need to build its own bank-authentication process.
The relevant bank and regulated Open Banking participants manage the customer authentication within the payment journey.
Are Open Banking payments safer than card payments?
It is better to describe the risk models as different rather than say one payment method is universally safer than the other.
Open Banking payment initiation can reduce some risks associated with customers manually entering card details because the customer authenticates directly with their bank.
However, merchants still need to consider risks such as:
- authorised push payment fraud;
- social engineering;
- account takeover;
- incorrect merchant or payment information;
- refund fraud;
- customer disputes;
- transaction monitoring; and
- business-specific fraud risks.
Businesses should understand which controls are provided by the Open Banking provider and which responsibilities remain with the merchant.
Do Open Banking payments have chargebacks?
An Open Banking account-to-account payment does not use the conventional card-scheme chargeback process in the same way as a Visa or Mastercard transaction.
That does not mean merchants should assume there can never be a dispute, refund request or payment problem.
Different protections, banking processes and legal rights can apply depending on the circumstances.
Before choosing a provider, establish:
- how disputed transactions are handled;
- what happens in cases of alleged fraud;
- how refunds are processed;
- whether the provider offers merchant dispute-management tools;
- what evidence the merchant may need; and
- which party handles customer queries.
How do Open Banking refunds work?
Refunds need to be considered as part of the integration rather than as an afterthought.
The original payment was made from a bank account rather than through a card credential, so the provider needs a way to identify the customer account and return funds appropriately.
Current Open Banking standards include customer journeys designed to support payment refunds.
The merchant should establish:
- how refunds are initiated;
- whether the original payer account is identified automatically;
- how full and partial refunds work;
- how long refunds normally take;
- whether refund fees apply;
- how refunds appear in reporting; and
- how the refund is reconciled with the original transaction.
Open Banking for ecommerce
Open Banking can be offered at ecommerce checkout alongside cards, wallets and other payment methods.
A typical merchant may integrate it through:
- a payment gateway;
- a PSP;
- an ecommerce plugin;
- a hosted checkout;
- an Open Banking specialist provider;
- an API integration; or
- a payment-orchestration platform.
The merchant should consider where the Open Banking option appears within checkout and whether customers understand what they are selecting.
Too many payment methods can create complexity rather than improve conversion.
For the wider checkout strategy, read our guide to Alternative Payment Methods .
Open Banking for invoice and B2B payments
Account-to-account payments can also be relevant outside conventional ecommerce.
For businesses collecting invoices, an Open Banking payment link or integrated payment request can potentially allow the customer to authorise payment directly from their bank account.
This can be useful where merchants want to:
- reduce manually entered bank-transfer references;
- connect payments with invoice information;
- receive clearer payment status;
- automate reconciliation;
- collect higher-value payments;
- send payment requests remotely; or
- integrate collections into accounting or ERP workflows.
The commercial benefit will depend on the business's existing bank-transfer process and the integration provided.
Open Banking for higher-value payments
Account-to-account payments can be particularly interesting where customers are making larger payments and the merchant wants an alternative to card processing.
Potential examples can include:
- professional services;
- property-related payments;
- automotive;
- higher-value retail;
- education;
- B2B invoices;
- travel;
- home improvements; and
- other higher-ticket purchases.
However, merchant acceptance, bank limits, customer experience and the provider's own transaction limits should all be checked before Open Banking is positioned as the primary payment method for high-value transactions.
Can Open Banking be used face to face?
Potentially.
An Open Banking payment does not require the customer and merchant to be sitting at separate computers.
A merchant could present a customer with a payment journey through:
- a QR code;
- a payment link;
- a tablet;
- a merchant app;
- a point-of-sale integration; or
- another provider-supported interface.
The customer can then authenticate the payment with their bank.
Whether this is preferable to a contactless card or wallet transaction depends on the merchant environment and customer experience.
A busy retail checkout may have very different requirements from a showroom collecting a £10,000 payment.
What are Variable Recurring Payments?
Variable Recurring Payments, or VRPs, extend Open Banking beyond one-off payment initiation.
A customer can give consent for payments to be initiated within agreed parameters rather than individually authorising the full setup again for every payment.
VRPs have already been used in the UK for sweeping use cases, such as moving money between accounts belonging to the same customer.
Commercial VRP, often shortened to cVRP, is intended to expand the model into broader recurring-payment use cases.
In June 2026 the FCA described the launch of the UK Payments Initiative as a major step toward commercial VRP and greater competition in recurring payments.
Availability is still dependent on the relevant provider, bank, scheme and use case, so businesses should not assume that every Open Banking provider currently offers commercial VRP for every recurring-payment requirement.
For more detail, see our guide to Variable Recurring Payments .
Open Banking recurring payments are changing
The UK Open Banking market is moving beyond one-off Pay by Bank transactions.
Commercial VRP is intended to support more flexible recurring-payment models and increase competition with existing recurring-payment methods.
However, it should not yet be treated as a universal replacement for Direct Debit or recurring cards.
Merchants should check which banks, payment providers, customer journeys and commercial VRP schemes are actually supported for their use case before designing the payment model around VRP.
Open Banking vs Direct Debit
Direct Debit and Open Banking serve different payment requirements.
Direct Debit is well established for recurring collections such as:
- subscriptions;
- memberships;
- utilities;
- regular invoices; and
- ongoing services.
Open Banking payment initiation is widely used for customer-authorised account-to-account payments, while VRP is developing the recurring-payment capabilities available through Open Banking.
Businesses comparing the two should consider:
- customer authorisation;
- payment frequency;
- variable amounts;
- collection timing;
- failed payments;
- refunds;
- customer protections;
- provider coverage;
- reporting; and
- reconciliation.
Open Banking and payment reconciliation
For businesses processing significant volumes, the value of Open Banking can depend just as much on reporting and reconciliation as on the checkout.
A well-integrated payment journey can potentially connect:
- customer;
- payment request;
- invoice or order reference;
- payment status;
- refund;
- bank settlement; and
- accounting or ERP records.
This can be particularly relevant for B2B collections and businesses currently trying to match large numbers of manual bank transfers against invoices.
For more complex finance workflows, see our guide to payment reconciliation .
Can high-risk businesses use Open Banking?
Potentially, but Open Banking is not a way to avoid payment-provider underwriting.
Open Banking providers can have their own:
- merchant-acceptance criteria;
- sector restrictions;
- transaction limits;
- country restrictions;
- compliance requirements;
- fraud controls; and
- risk appetite.
A business declined for card processing should not assume that every Open Banking provider will automatically accept it.
The provider will still need to understand what the business does and whether it falls within its permitted and commercial appetite.
Does Open Banking work internationally?
The UK has a well-developed Open Banking framework, but merchants should not assume that the same payment journey is available identically across every country.
Other markets have their own:
- open-banking frameworks;
- account-to-account payment schemes;
- bank APIs;
- regulation;
- customer authentication;
- payment rails; and
- local payment methods.
An international merchant should therefore establish which countries and banks the provider actually supports rather than assuming UK Open Banking automatically gives global bank-payment coverage.
For broader international checkout strategy, see our Alternative Payment Methods guide .
What should merchants compare between Open Banking providers?
Regulatory status
Is the provider appropriately authorised or registered for the services it provides?
Bank coverage
Which banks and account types can customers use?
Payment journey
How many steps does the customer need to complete and how does the journey work across mobile and desktop?
Payment confirmation
What payment statuses are returned and what do they mean operationally for the merchant?
Settlement
When does the merchant receive or gain access to funds?
Refunds
Can full and partial refunds be processed easily?
Recurring payments
Does the provider support VRP, commercial VRP or another recurring bank-payment model relevant to the business?
Pricing
Is pricing fixed, percentage based or negotiated, and are there additional platform or integration costs?
Integration
Does the service connect with the merchant's gateway, ecommerce platform, app, invoicing system, ERP or accounting software?
Reporting and reconciliation
Can payments, refunds and settlement be matched easily to orders or invoices?
Merchant eligibility
Does the provider support the business sector, transaction values, geography and payment use case?
Open Banking should solve a payment problem, not simply add another button
Consider why you want account-to-account payments, which customers will use them, how the transaction will settle and how the finance team will reconcile the payment afterwards.
Merchant Advice Service can help you map those requirements before identifying providers that may be suitable.
Find suitable providers Explore Open Banking providers
How Merchant Advice Service helps with Open Banking payments
Merchant Advice Service does not provide payment-initiation services or determine the regulatory status of Open Banking providers.
Our role is to help businesses understand their payment requirement before identifying providers that may be suitable.
For Open Banking enquiries, that can include:
- Pay by Bank requirements;
- one-off payment initiation;
- ecommerce checkout;
- payment links;
- invoice and B2B collection;
- higher-value transactions;
- VRP requirements;
- existing payment gateways;
- cards and other alternative payment methods;
- customer banks and locations;
- transaction values;
- payment volumes;
- settlement;
- refunds;
- reporting;
- reconciliation;
- ERP or accounting integration; and
- provider eligibility.
For the wider alternative-payment strategy, see our Alternative Payment Methods guide .
Editorial & Commercial Disclosure
This guide provides general information about Open Banking, payment initiation, account-to-account payments and related merchant payment services.
Payment Initiation Services and Account Information Services are regulated activities in the UK. Providers determine their own merchant eligibility, functionality, pricing and commercial terms.
Open Banking functionality, bank coverage, Variable Recurring Payment availability and commercial Open Banking schemes continue to develop.
Merchant Advice Service does not provide regulated payment-initiation or account-information services and does not determine whether a provider is authorised to carry out a regulated activity.
MAS is an independent payments information and provider-matching service. MAS may receive a referral fee or commission from some payment providers where a business proceeds following an introduction. Commercial relationships do not determine the factual information or provider-selection principles contained within this guide.
Businesses should verify a provider's regulatory status through the FCA and confirm current functionality, bank coverage, pricing and contractual terms directly with the relevant provider.
Information is provided for general guidance and should not be treated as legal, regulatory or financial advice.
