Pay by bank is the open banking payment method that promises to move money straight from your customer's account to yours for a fraction of what your card machine charges. No card networks, no interchange, and no chargebacks. That last one is a feature and a warning at the same time. This guide explains how pay by bank works for UK small businesses, where the savings are real, where the trade-offs bite, and what, if anything, you should do about it now.
What is pay by bank, in plain English?
Pay by bank is an account-to-account payment made through open banking, the UK framework that lets regulated third parties initiate payments from a customer's bank account with their approval. In practice, the customer scans a QR code or taps a payment link, their banking app opens with the amount pre-filled, they approve with face or fingerprint, and the money moves directly to you.
The crucial difference from a card payment is what is missing: no card, no Visa or Mastercard network, no interchange, and no acquirer in the traditional sense. The payment travels over bank rails, typically arriving via Faster Payments, which means settlement can land in minutes rather than the next working day. Our guide on how long card payments take to clear shows what that is competing against.
You will see it under many names: pay by bank, bank transfer at checkout, open banking payments, or a branded button inside an invoicing or payments app. Underneath, it is the same plumbing.
The fee case: why merchants are paying attention
The economics are the whole reason this exists. A £100 card payment costs you £1.69 on SumUp or £1.75 on Square. The same £100 by pay by bank typically costs pence, or a small fixed fee, because there is no interchange and no card network to feed. Pricing varies by provider, so check current terms, but the gap is structural, not promotional.
Scale that up and it stops being pocket change. A business taking £10,000 a month by card pays roughly £169 to £175 a month in flat-rate fees, over £2,000 a year. Shift even half of that volume to account-to-account payments and you could keep four figures annually that currently goes to the payment industry.
The bigger the transaction, the stronger the case. On a £2,000 invoice, a card payment costs about £34 in flat-rate fees while pay by bank costs pence, which is why the method is landing first where tickets are large. For everyday £4 coffees, the absolute saving per transaction is small enough that convenience still rules.
No chargebacks: the double-edged trait
Pay by bank has no chargeback mechanism, because settlement is a push payment: the customer instructs their own bank to send the money, rather than authorising you to pull it. Once it arrives, there is no card scheme to claw it back through. For merchants who have suffered unfair chargebacks, this sounds like heaven, and our chargebacks guide shows why.
But be honest about the flip side: the chargeback system, for all its pain, is consumer protection. Card customers get dispute rights, and credit card purchases over £100 carry Section 75 protection. A pay-by-bank customer has neither, relying instead on your goodwill and narrower bank protections. The trade-off is real, not a rounding error.
This shapes where the method fits. For invoices, deposits and trusted repeat trade, weaker buyer protection rarely matters. For a big one-off purchase from a business the customer has never met, plenty of people will rationally prefer a credit card, and you should not resent them for it.
Where pay by bank is landing first
Adoption is following the money. Invoices are the beachhead: a pay-by-bank link on an invoice replaces the customer typing your sort code and account number, gets you paid faster, and saves serious fees versus taking the invoice by card. Trades, professional services and B2B suppliers are the natural early adopters.
Big-ticket and online payments come next. Deposits on jobs, event bookings, furniture, car repairs: anywhere the amount is large and the payment is made from a phone anyway, a QR code or link fits naturally and the fee saving per transaction is visible to the merchant.
Some card providers are hedging by bundling open banking payments alongside cards, letting merchants offer both from one account. If your provider adds a pay-by-bank option at low cost, that is the easy on-ramp: you get the savings where customers accept it without changing anything else.
Why in-person adoption is still slow
At the counter, pay by bank fights human habit, and habit is winning. A contactless tap takes about a second and requires no thought; scanning a QR code, waiting for the bank app, and approving takes longer and demands attention. For queues of small transactions, the tap is close to unbeatable, which is why your card machine is not going anywhere soon.
There is also a cold-start problem. Customers will not look for pay by bank until they have used it somewhere, staff will not offer it until customers stop looking baffled, and merchants will not push it for a saving of a few pence on a coffee. Each side is waiting for the other, and that takes years to unwind.
None of this makes the sceptics right forever. The same objections were made about contactless itself, which crawled for years and then became the default. But betting your checkout on customer behaviour changing next quarter is how businesses buy hardware they regret.
What to do now: a sensible playbook
Do nothing rash. Do not rip out your card machine, and do not sign anything long-term with a pay-by-bank startup on the promise of the future. The technology is young, providers are consolidating, and your customers still expect to tap a card.
Do take the cheap wins that exist today.
And keep perspective: your biggest savings this year probably still come from getting your card fees right, so run your numbers through our fee calculator before chasing new rails.
- If you send invoices, add a pay-by-bank link now. It is the mature use case and the fee saving is immediate.
- If you take deposits or large one-off payments, offer pay by bank alongside cards and let customers choose.
- Ask your current provider whether they offer open banking payments, and what they cost. Check current terms rather than assuming.
- Watch uptake for a year before investing in QR signage or staff training for counter payments.
- Never make it the only option: weaker consumer protection means some customers will reasonably insist on a card.
The honest verdict
Pay by bank is a complement, not a replacement, at least for now. For invoices and big tickets, it is already the cheapest sensible way to get paid and you should be using it. At the counter, cards keep the crown, because a one-second tap beats a QR scan for a £5 sale and no fee saving changes that arithmetic today.
The direction of travel still matters. Open banking payments give merchants their first real lever against card fees in decades, and the providers bundling both are making the hedge easy. Keep your card machine, add the bank rail where it fits, and revisit the question every year or so. The moment your customers start asking for it is the moment the answer changes.
FAQs
What is pay by bank in the UK?
Pay by bank is an open banking payment where money moves directly from the customer's bank account to yours, approved in their banking app via a QR code or link. It skips the card networks entirely, which is why it costs a fraction of a card payment and often settles within minutes.
How much cheaper is pay by bank than card payments?
Card payments cost roughly 1.69% to 1.75% on flat-rate readers, so £16.90 or more per £1,000. Pay by bank typically costs pence or a small fixed fee per transaction because there is no interchange or scheme fee, though pricing varies by provider, so check current terms.
Are there chargebacks with pay by bank?
No. Settlement is a push payment from the customer's bank, so there is no card-scheme chargeback mechanism to reverse it. That protects merchants from unfair disputes but leaves customers with weaker protection than cards, which is why some buyers will still prefer to pay by credit card.
Should small businesses switch to open banking payments?
Not switch, add. Use pay-by-bank links for invoices, deposits and large payments now, where the savings are big and buyer protection matters less. Keep your card machine for counter sales, because in-person adoption is still early and customers overwhelmingly expect to tap.
