Pay by Bank Checkout: The Complete Guide for Merchants & Shoppers
Written by Lee Hart
Pay by bank checkout is transforming how customers pay for goods and services online by allowing direct transfers from their bank accounts without using cards. This payment method has emerged as one of the top three preferred payment options in key European markets, sitting alongside debit cards and digital wallets as consumers increasingly seek faster, more secure ways to complete transactions.
Pay by bank checkout enables customers to pay directly from their bank account through secure banking APIs, bypassing traditional card networks and offering merchants lower transaction fees with faster settlement times. The technology leverages open banking infrastructure to create a flexible user experience and streamlined payment process where customers authenticate through their own banking app or online banking portal.
This payment innovation addresses growing concerns about transaction costs and security whilst meeting consumer demand for real-time digital interactions. Pay by bank offers compelling benefits including reduced fraud risk and smoother checkout experiences, making it an attractive option for both merchants seeking cost savings and customers wanting secure payment alternatives.
Key Takeaways
- Pay by bank allows direct account-to-account transfers without traditional card networks, reducing merchant fees and speeding up settlement
- Customers authenticate payments through their own banking apps, creating a more secure transaction process than card-based payments
- The payment method is rapidly growing across Europe and proving useful for various industries from e-commerce to professional services
What Is Pay by Bank Checkout?
Pay by Bank checkout enables customers to transfer money directly from their bank accounts to merchants without using cards or manual transfers. This payment method uses open banking infrastructure to create a seamless payment experience without unnecessary friction, enabling secure transactions through familiar banking apps.
Definition and Overview
Pay by Bank checkout is a payment method that allows customers to pay directly from their bank accounts using secure banking infrastructure. Customers complete purchases by authenticating through their existing mobile banking app or online banking platform.
The process requires no card details, manual account numbers, or additional app downloads. Instead, customers scan a QR code or click a payment link at checkout.
They then select their bank from a supported list and use instant account authentication, logging in with biometrics or their usual passcode. The payment is approved with a single tap, and funds transfer instantly to the merchant's account.
This approach eliminates traditional payment intermediaries like card networks and acquiring banks. The result is faster settlement times and reduced card processing fees for businesses.
Difference from Traditional Payment Methods
Pay by Bank cuts out middlemen entirely, enabling smoother flows, unlike card payments that involve multiple parties and processing layers. Traditional card transactions typically settle in 1-3 working days, whilst Pay by Bank transfers complete instantly.
Key differences include:
- Processing fees: Card payments cost 1.5-3.4% versus 0.5-1% for Pay by Bank
- Settlement speed: Instant versus 1-3 days for cards
- Chargebacks: None for Pay by Bank payments versus potential disputes with cards
- Hardware requirements: No terminals needed for Pay by Bank
Unlike manual bank transfers, customers don't need to add payee details or reference numbers. This reduces errors and speeds up the payment process significantly.
Open Banking and Account-to-Account Payments
Open banking regulations introduced in 2018 enable authorised third parties to access financial data and initiate payments with customer consent. These APIs create secure bridges between customer banks and payment providers.
The UK's Faster Payments network processes the actual money transfer in real-time. This combination delivers what's formally called Payment Initiation Services (PIS).
Open banking payments use bank-grade encryption and mandatory Strong Customer Authentication (SCA). Each transaction requires approval within the customer's own banking environment.
This infrastructure eliminates the need for businesses to handle sensitive financial data directly. Account-to-account transfers happen securely without exposing card numbers or personal banking details to merchants.
How Pay by Bank Checkout Works
Pay by bank checkout uses secure banking APIs to connect customers directly to their mobile banking apps during payment. The process eliminates card details whilst maintaining stronger security through established bank authentication systems.
Checkout Process Step-by-Step
Customers begin by selecting pay by bank as their payment method on the merchant's payment page. The system then redirects them to their chosen bank's secure portal.
Step 1: Payment Method Selection
- Customer clicks "Pay by Bank" at checkout
- System displays available banking partners
- Customer selects their specific bank
Step 2: Bank Authentication
- Automatic redirect to banking app or online portal
- Customer logs in using existing credentials
- Biometric verification may be required
Step 3: Payment Authorisation
- Bank displays transaction details for review
- Amount and merchant information appear clearly
- Customer confirms payment with single tap
Step 4: Real-Time Processing
- Bank processes the bank transfer immediately
- Confirmation sent to merchant's system
- Both parties receive instant notifications
The entire process typically completes within 30-60 seconds. No card details are stored or transmitted during the transaction.
Customer Journey: Online and In-Store
Online Experience Digital shoppers encounter streamlined checkout flows that eliminate manual entry requirements. Payment links can be embedded directly into e-commerce platforms.
Customers simply authenticate through their familiar mobile banking interface. The process feels identical to checking account balances or making standard bank transfers.
In-Store Implementation Physical retailers generate QR codes or payment links at point of sale. Customers scan these codes with their banking app to initiate transactions.
Staff can also send payment links via SMS or email for contactless processing. This approach proves particularly useful for high-value purchases or service payments.
The unified experience across channels maintains consistency. Customers use the same authentication methods regardless of shopping environment.
Banking App Integration
Modern banking apps support open banking APIs that enable seamless merchant integration. These APIs handle secure data exchange between banks and payment processors.
Technical Integration Banks provide standardised endpoints for payment initiation. Merchants integrate once to access multiple banking partners simultaneously.
Real-time balance checks prevent insufficient fund scenarios. The system validates account status before presenting payment options.
Security Protocols Strong Customer Authentication (SCA) requirements are met through existing banking app security. Multi-factor authentication remains within the banking environment.
No sensitive financial data passes through merchant systems. Banks maintain complete control over customer authentication and authorisation processes.
User Interface Banking apps display merchant payment requests in familiar interfaces. Customers see consistent branding and security indicators they recognise and trust.
Push notifications alert customers to payment requests. Transaction histories appear alongside regular bank transfers in account statements.
Benefits of Pay by Bank for Merchants
Pay by Bank offers merchants significant cost savings through reduced transaction fees and eliminates chargeback risks entirely. The payment method also provides instant settlement, ensuring businesses receive funds immediately rather than waiting days for traditional payment processing.
Lower Transaction Fees and Payment Costs
Merchants can reduce payment acceptance costs significantly compared to traditional card payments. Pay by Bank transactions bypass card networks entirely, eliminating interchange fees that typically range from 1.5% to 3.5% per transaction.
Traditional Card Payment Costs:
- Interchange fees: 1.5-3.5%
- Processing fees: 0.1-0.3%
- Scheme fees: 0.05-0.1%
Pay by Bank Costs:
- Fixed transaction fee or small percentage
- No interchange fees
- No scheme fees
The cost difference becomes substantial for high-volume merchants. A business processing £100,000 monthly could save £1,500-£3,500 per month by switching from card payments to Pay by Bank.
UK retailers particularly benefit from these reduced fees. The savings allow merchants to offer competitive pricing or improve profit margins without passing costs to customers.
No Chargebacks and Reduced Fraud
Pay by Bank eliminates chargeback risks completely since customers cannot dispute transactions through card networks. This protection saves merchants from costly chargeback fees and administrative burdens.
Chargeback Elimination Benefits:
- No £15-£50 chargeback fees
- No revenue reversals
- Reduced administrative costs
- No chargeback ratio penalties
The authentication process reduces fraud significantly. Customers must log into their bank account using strong customer authentication, including biometric verification or SMS codes.
Banks verify the customer's identity before authorising payments. This multi-layer security makes fraudulent transactions nearly impossible compared to card payments where stolen details can be used easily.
Merchants avoid the costs associated with fraud management systems and manual review processes. The reduced fraud risk also eliminates the need for extensive verification procedures.
Instant Settlement and Real-Time Payments
Real-time bank transfers provide merchants with immediate access to funds. Unlike card payments that take 1-3 business days to settle, Pay by Bank transfers money instantly.
Settlement Speed Comparison:
- Pay by Bank: Instant to 2 hours
- Debit cards: 1-2 business days
- Credit cards: 2-3 business days
Faster settlement improves cash flow management significantly. Merchants can reinvest funds immediately or use them for operational expenses without waiting for traditional clearing cycles.
The instant settlement also enables immediate refunds when needed. Customers receive refunds within hours rather than waiting 3-5 business days for card refund processing.
24/7/365 processing means payments aren't delayed by banking hours or weekends. This continuous processing capability helps merchants maintain consistent cash flow regardless of when transactions occur.
Benefits of Pay by Bank for Customers
Pay by Bank offers customers enhanced security through bank-level authentication, faster refunds directly to their accounts, and simplified checkout experiences through their familiar banking apps.
Enhanced Security and Strong Customer Authentication
Pay by Bank uses strong customer authentication (SCA) to protect every transaction. This multi-layer security system requires customers to verify their identity through methods like biometric scanning or SMS codes.
The authentication happens directly through the customer's banking app. This means sensitive payment details never get shared with merchants or stored on shopping websites.
Banks use the same security protocols for Pay by Bank as they do for regular online banking. This includes encryption and fraud monitoring systems that banks have developed over decades.
Pay by Bank uses open banking APIs to create secure connections between customer accounts and payment providers. These APIs provide encrypted, authenticated transactions that meet strict regulatory standards.
The SCA process happens in seconds but adds multiple security layers that credit cards cannot match.
Faster Refunds and Settlements
Customers receive instant refunds when merchants process returns through Pay by Bank systems. The money goes directly back to their bank account without waiting for card processing delays.
Traditional card refunds can take 3-7 business days to appear in customer accounts. Pay by Bank refunds often complete within hours or minutes.
Pay by Bank enables instant settlement for many transactions. This means faster dispute resolution when customers need their money back quickly.
The direct bank-to-bank transfer eliminates intermediary processing steps. Customers can see refunds in their mobile banking apps almost immediately after merchants approve the return.
This speed particularly helps customers managing tight budgets or making time-sensitive purchases.
User Experience and Convenience
Pay by Bank integrates directly with mobile banking apps that customers already use daily. This eliminates the need to remember card numbers, expiry dates, or security codes.
The checkout process requires just a few taps. Customers select Pay by Bank, choose their bank, log in through their banking app, and approve the payment.
Returning customers experience even smoother transactions. Their preferred bank gets pre-selected, making future purchases faster than entering card details repeatedly.
Pay by Bank can make paying bills a one-click job for recurring payments like utilities or subscriptions. Customers set up automatic payments directly through their banking interface.
The payment method works across desktop and mobile devices. Customers get consistent experiences whether shopping on laptops or smartphones.
Implementing Pay by Bank at Checkout
Successful implementation requires careful attention to user interface design, proper API integration, and flexible payment delivery methods. The checkout experience must feel seamless whilst maintaining bank-level security throughout the transaction process.
Payment Page and User Interface Considerations
The payment page design directly impacts customer completion rates and overall satisfaction. Clear visual hierarchy helps customers understand their payment options without confusion.
Button placement and labelling should follow established conventions. Position the Pay by Bank option prominently alongside other payment methods. Use descriptive labels like "Pay with your bank" or "Bank account payment" rather than technical terms.
Mobile optimisation becomes critical since most customers will complete authentication through their banking app. The interface must adapt smoothly to different screen sizes and handle app-switching seamlessly.
Loading states and feedback keep customers informed during the authentication process. Display clear messages when redirecting to the banking app and confirmation screens when returning to the merchant site.
Visual trust indicators enhance customer confidence. Include recognised bank logos, security badges, and clear explanations of the payment process. Many customers remain unfamiliar with Pay by Bank functionality, making educational elements essential.
Integrating Open Banking APIs
Open Banking APIs enable direct communication between merchant systems and customer banks. The integration requires proper authentication, error handling, and compliance with regulatory standards.
API authentication uses OAuth 2.0 protocols to establish secure connections. Merchants must register with their chosen payment provider and obtain necessary credentials for production environments.
Payment initiation follows a standardised flow. The merchant sends payment details to the API, which generates a unique payment request. This request includes amount, reference, and merchant identification details.
Real-time status updates keep merchants informed of payment progress. Open Banking infrastructure provides immediate confirmation when customers complete or abandon payments.
Error handling manages various scenarios including bank downtime, invalid account details, or insufficient funds. Robust implementations include fallback options and clear customer communication during failures.
Webhook integration enables automatic reconciliation and order processing. Payment providers send instant notifications when transactions complete, allowing immediate fulfilment of digital goods or services.
Payment Links and QR Code Solutions
Payment links and QR codes offer flexible alternatives to traditional checkout pages. These methods work particularly well for in-person payments, invoicing, and mobile-first experiences.
SMS and email links allow businesses to request payments remotely. Customers receive a secure link that opens their banking app directly to the payment authorisation screen. This method suits service businesses, consultations, and invoice payments.
QR code implementation works effectively for retail environments. Customers scan codes using their phone camera, which opens the payment flow in their banking app. QR checkout solutions integrate with existing point-of-sale systems without requiring new hardware.
Dynamic vs static codes serve different purposes. Dynamic codes contain specific payment amounts and references, whilst static codes allow customers to enter amounts manually. Restaurants often use static codes for table payments, whilst retailers prefer dynamic codes for specific purchases.
Link security includes expiration times and single-use restrictions where appropriate. Payment links should include merchant branding and clear payment details to prevent confusion or fraud concerns.
Key Use Cases and Industry Adoption
Pay by bank checkout has gained significant traction across multiple sectors, with e-commerce leading adoption rates and traditional payment scenarios expanding rapidly. Major retailers and service providers are implementing these solutions to reduce transaction costs whilst consumers benefit from streamlined payment experiences.
E-Commerce and Retail Environments
Online retailers have emerged as the primary adopters of pay by bank solutions. Major industry leaders like Ryanair, JustEat, and Lastminute.com have embraced pay by bank, demonstrating the payment method's viability for high-volume transactions.
Walmart has partnered with Fiserv to launch an instant pay by bank solution for both online and in-person purchases. Starting in 2025, customers can link their bank account details directly to their Walmart accounts for instant payment transactions.
Key advantages for retailers include:
- Reduced interchange fees compared to credit card payments
- Faster settlement times when using instant payment rails
- Enhanced security through open banking infrastructure
The retail sector benefits particularly from lower transaction costs. Pay by bank can result in cost savings between 40% and 85% compared to credit cards.
Traditional brick-and-mortar stores are also exploring integration options. Point-of-sale systems now support bank payment methods alongside conventional card terminals.
Bill Payments and Subscriptions
Utility companies and subscription services represent a growing segment for pay by bank adoption. These businesses benefit from predictable payment flows and reduced processing costs for recurring transactions.
B2B payments, invoice settlements, and subscription flows are gaining traction as companies seek alternatives to traditional payment methods. Monthly and quarterly billing cycles align well with bank transfer processing times.
Common applications include:
- Utility bill payments
- Insurance premiums
- Subscription service renewals
- Government tax payments
The subscription model particularly benefits from open banking payments. Customers can authorise recurring bank transfers without sharing sensitive payment details with multiple service providers.
Payment failures decrease significantly with bank payment methods. Unlike card payments that may fail due to expired cards or changed details, bank account information remains relatively stable.
Peer-to-Peer and Account Top-Ups
Digital wallet providers and fintech applications increasingly offer pay by bank options for account funding. This use case addresses consumer demand for direct bank transfers without traditional card networks.
About 26% of consumers directly link their bank accounts to fund digital wallet transactions, indicating growing comfort with bank payment methods.
Mobile payment applications leverage open banking APIs to facilitate instant transfers between users. These transactions bypass card networks entirely, reducing costs for both providers and consumers.
Popular implementations include:
- Mobile wallet top-ups
- Investment account funding
- Cryptocurrency exchange deposits
- Gaming platform credits
Peer-to-peer transfers benefit from instant payment rails, enabling real-time settlement between bank accounts. This capability rivals traditional card-based instant payments whilst offering enhanced security features.
The absence of explicit usage fees makes bank transfers attractive for larger transactions. Consumers avoid percentage-based card fees when transferring substantial amounts between accounts.
Regulatory Environment and Future Trends
The UK's regulatory framework for pay by bank checkout is rapidly evolving, with new policies strengthening open banking whilst addressing consumer protection concerns. Real-time payment systems are expanding globally through enhanced bank APIs and regulatory support for account-to-account transfers.
Current Regulatory Landscape
The UK government has established comprehensive regulations governing pay by bank transactions through open banking frameworks. Payment regulation updates for 2025 focus on strengthening customer authentication requirements and improving fraud prevention measures.
Current regulations mandate strong customer authentication (SCA) for all bank API transactions. This requirement ensures that customers must verify their identity through multiple factors before completing payments. Financial institutions must comply with revised Payment Services Directive standards.
The Financial Conduct Authority oversees open banking compliance across UK banks. Authorised payment institutions must maintain strict data protection standards when accessing customer account information. These regulations create a secure environment for real-time payments whilst protecting consumer financial data.
Key regulatory requirements include:
- Multi-factor authentication for all transactions
- Encrypted data transmission between banks and merchants
- Clear consent mechanisms for account access
- Standardised liability frameworks for disputed payments
Future of Real-Time Payments and Open Banking
The UK is developing a centralised operator framework to standardise pay by bank services across financial institutions. This operator will establish unified rules for recurring payments, dispute management, and liability allocation.
Variable Recurring Payments (VRP) will transform subscription-based commerce in 2025. The FCA has provided regulatory backing for "Bank on File" services that allow flexible repeat payments directly from bank accounts. This innovation challenges traditional card-based subscription models.
Open banking technologies will expand beyond payment initiation to include enhanced financial data sharing capabilities. Banks must upgrade their APIs to support real-time balance verification and instant payment confirmation.
The government's National Payments Vision aims to position the UK as a world leader in digital payments infrastructure. Regulatory changes will reduce overlaps between different oversight bodies whilst accelerating open banking adoption across retail sectors.
Upcoming regulatory developments:
- Standardised dispute resolution processes
- Enhanced consumer protection measures
- Expanded real-time payment capabilities
- Improved bank API performance standards
Frequently Asked Questions
Bank payment integration involves multiple technical and security considerations that businesses and consumers need to understand. The process requires specific merchant services, security protocols, and sometimes third-party platforms to facilitate seamless transactions.
How can I integrate bank payments using merchant services?
Businesses can integrate bank payments through authorised payment service providers that offer open banking APIs. These merchant services connect directly to banking systems without requiring traditional card terminals.
Most providers offer plug-and-play integrations with existing accounting software like Xero, QuickBooks, or Sage. The integration typically involves adding payment links to invoices or embedding checkout options on websites.
Implementation requires minimal technical setup in most cases. Businesses can display QR codes for in-store payments or send payment links via SMS, email, or WhatsApp for remote transactions.
What are the steps to pay online with my bank account?
Customers begin by selecting Pay by Bank as their payment method at checkout. They then choose their bank from a list of supported providers displayed on screen.
The system redirects them to their banking app or online banking portal for authentication. Customers log in using their usual banking credentials, biometrics, or passcode.
Once authenticated, they review the payment details and approve the transaction with a single tap. The funds transfer instantly to the merchant's account with real-time confirmation sent to both parties.
How do banks facilitate payments at dispensaries?
Banks facilitate dispensary payments through compliant payment processing systems that meet regulatory requirements. These systems often use bank-to-bank transfers to avoid card network restrictions on certain business types.
Payment providers work with authorised banks to create secure channels for these transactions. The payments typically process as standard bank transfers rather than card payments.
Dispensaries can offer customers QR codes or payment terminals that connect directly to banking systems. This approach provides legal payment options whilst maintaining compliance with banking regulations.
What security measures are in place for bank payment methods?
Bank payment security relies on Strong Customer Authentication (SCA) mandated under PSD2 regulations. Each transaction requires approval within the customer's own banking environment using biometrics or secure login methods.
All payments use bank-grade encryption and are protected by the same security measures as standard online banking. No card details or sensitive financial information is stored by merchants during the process.
Financial Conduct Authority (FCA) regulation covers most payment providers, with many also holding ISO 27001 certifications. The system eliminates card data exposure, reducing PCI compliance burdens for businesses.
How do services like Plaid and Fiserv support bank payments?
Third-party payment platforms provide the technical infrastructure to connect businesses with banking systems. These services offer APIs that enable secure communication between merchant websites and customer bank accounts.
They handle the complex regulatory requirements and maintain connections with multiple banks simultaneously. This allows businesses to accept payments from various banking providers through a single integration point.
These platforms typically charge transaction fees between 0.5% and 1% for their services. They also provide additional features like payment tracking, automated reconciliation, and refund processing capabilities.
Can I set up recurring payments through my bank account online?
Variable Recurring Payments (VRP) are being introduced across UK banks as an alternative to traditional Direct Debit systems. These allow customers to set up flexible recurring payments with different amounts and frequencies.
VRP provides customers with more control over recurring payments compared to standard Direct Debit arrangements. Customers can modify, pause, or cancel payments directly through their banking app without contacting the merchant.
Not all banks currently support VRP functionality, though rollout is expanding throughout 2025. Businesses can offer this option alongside traditional payment methods where available from their payment provider.
About The Author
Lee Hart
