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The United Kingdom is the market where Open Banking payments stopped being a pilot. Since the first mandated APIs of 2018, pay-by-bank has grown into a method that high-risk and cross-border merchants put first on the checkout, ahead of cards, because it settles in seconds on Faster Payments and never comes back as a chargeback. This guide is for a PSP that serves UK merchants and has to decide where pay-by-bank goes on the page, which providers to enable and how to route between bank and card.
How a pay-by-bank payment works
- The checkout offers “Pay by bank” and lists the payer’s banks.
- The payer picks the bank, is sent to its app, sees the amount and the payee and confirms with the bank’s own authentication.
- The licensed payment initiation provider, TrueLayer, Yapily, Volt or Token.io in the Tranzify catalogue, initiates the transfer and reports the confirmation.
- The money moves on Faster Payments; the merchant’s balance is credited in seconds; the platform journals the result and calls the webhook.
The payer never types an account number: the bank’s app shows the payee and the amount already filled in, and the authentication is the one the payer uses every day. That is why the method converts well where the bank’s app is fast, and why the drop-off, where there is one, happens in the bank’s app rather than on the checkout.
The UK’s building blocks
| Block | What it is | Why it matters for a PSP |
|---|---|---|
| Open Banking APIs | The regulated APIs the nine largest banks were mandated to open in 2018, now offered by most UK banks | Coverage of the payer’s bank is almost total; the list on the checkout is long, so ordering matters |
| Faster Payments | The instant rail that moves the transfer | Settlement in seconds, around the clock, with a limit per transfer the bank sets |
| Payment initiation providers | Companies authorised by the FCA to initiate payments from the payer’s account | They are the licensed party for the initiation; the PSP enables them as terminals |
| Variable recurring payments | Agreements that let a provider take repeated payments within limits the payer set | Sweeping is live; recurring for merchants is spreading provider by provider |
| Confirmation of Payee | The bank’s check that the payee’s name matches the account | Fewer misdirected transfers and fewer support tickets |
Where pay-by-bank wins
- High-risk verticals. Deposits for iGaming, forex and crypto on-ramps decline often on cards; a bank transfer the payer authorised does not.
- Large amounts. Card fees are a percentage; Open Banking providers charge per transaction. Above a few hundred pounds the difference is visible on the margin.
- Cross-border merchants. A UK payer’s bank is in the list regardless of where the merchant’s acquirer sits.
- Payouts. Faster Payments is the rail for refunds and withdrawals as well; the same provider does both.
- No chargebacks. A dispute goes through the bank’s process at the payer’s initiative, not through a scheme’s programme with ratios and fees.
Where cards still win
- Small, impulsive purchases. Apple Pay and Google Pay finish in a tap; a bank redirect is two screens longer.
- Subscriptions. Variable recurring payments exist but are not everywhere yet; a card token is the simpler choice.
- Payers whose bank is missing. Coverage is wide but not total; the checkout must have a fallback.
- Payers abroad. A UK merchant selling to a payer in another country needs that country’s rails; pay-by-bank in the UK sense covers UK accounts.
The economics for a PSP
A card payment costs the merchant a percentage made of interchange, scheme fees and the acquirer’s margin, plus the cost of chargebacks and the reserve the acquirer holds against them; a pay-by-bank payment costs a flat fee to the provider, sometimes with a small percentage above a threshold, and nothing for disputes. For a merchant with an average amount of 20 pounds the two are close; for a deposit of 500 pounds the bank transfer is several times cheaper. The PSP’s margin can follow the same shape: a flat fee on pay-by-bank that stays visible on the merchant’s statement, and the ledger shows the fee per payment by terminal so the margin is a number, not an estimate.
Routing between them
A client on Tranzify writes the rule, not the code: for the merchant’s category and the amount, offer pay-by-bank first; cascade to cards when the payer abandons the bank flow or the bank is unsupported; keep wallets for small amounts. Two providers in one route group give a cascade inside the method: a bank one provider does not support is often supported by the other, and an outage at one provider does not take the method off the page. The back office shows the approval and the cost per route, so the rule follows the numbers and not the opinion.
| Merchant | First on the page | Fallback | Why |
|---|---|---|---|
| iGaming deposits above 50 pounds | Pay-by-bank | Cards cascaded across two acquirers | No chargebacks, instant settlement, higher limits |
| E-commerce basket of 30 pounds | Apple Pay and Google Pay, cards | Pay-by-bank | Speed wins at small amounts |
| Forex deposit of 2 000 pounds | Pay-by-bank | Bank transfer with a reference | Card limits and fees |
| Subscription | Card token | Variable recurring payment where the provider offers it | Simplicity today |
Getting the bank list right
Show UK banks only to a UK payer; put the payer’s likely bank first when the previous payment told you which it was; give a search box; keep the amount and the payee visible on the page; and return the payer to the checkout with the result already there. A bank list in alphabetical order with forty entries is where conversion goes to die; the checkout does the ordering, and the journal shows at which step a payment stopped.
Who is licensed
The payment initiation providers are authorised by the FCA; the client that serves the merchants holds its own authorisation. Tranzify integrates the providers and supplies the software; it never holds the funds. The Open Banking product page describes the method across markets, and the United Kingdom country page lists the providers and the methods with their share.
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