Pay by Bank

Pay by bank is a payment method in which a customer pays a merchant directly from their bank account rather than with a card. At checkout, the customer chooses to pay by bank, selects their bank, and approves the payment in their banking app or website; the money then moves from the customer's account to the merchant's account by bank transfer, often in seconds. Merchants use pay by bank for online shopping, bills, account top-ups, investments and larger purchases where card fees are costly.

Pay by bank is a form of account-to-account payment. In Europe and the United Kingdom it usually relies on open banking, in which a licensed payment initiation service provider sets up the transfer with the customer's permission. Elsewhere it can run on national instant payment systems, bank-run schemes or direct debit networks, so the term covers several technical models with a similar customer experience.

A typical open banking pay by bank flow has these steps:

1. The customer selects pay by bank at checkout and chooses their bank from a list.
2. The merchant's payment provider creates a payment request with the amount, the merchant's account and a reference, using a payment initiation API.
3. The customer is sent to their bank's app or website, through a bank redirect or app-to-app link, and authenticates with their usual login and biometrics.
4. The customer reviews and approves the payment, meeting strong customer authentication rules.
5. The bank sends the transfer over an instant payment system, such as Faster Payments in the UK or SEPA Instant Credit Transfer in the euro area, and the provider confirms the result to the merchant.

Because the customer approves the payment inside their own bank, the merchant never sees or stores card numbers or bank login details.

Pay by bank takes different forms in different markets:

• Open banking payments. In the UK and the European Union, rules under the Second Payment Services Directive require banks to let licensed providers initiate payments, which underpins most pay by bank services.
• National schemes. Several countries have bank-owned or central-bank-run schemes, such as iDEAL in the Netherlands and Pix in Brazil, which central banks or bank consortia operate as national account-to-account payment methods.
• Instant payment interfaces. India's Unified Payments Interface lets customers pay merchants from bank accounts through apps and QR codes.
• United States. Pay by bank services typically use ACH debits authorised online, sometimes with bank account linking through data aggregators, and increasingly real-time payment networks.

For merchants, the main attraction is cost. Pay by bank avoids the interchange fee and card scheme fees, so it is usually cheaper than card acceptance, especially for large payments. Instant payments mean funds arrive quickly and are irrevocable, removing the risk of later card chargebacks. For customers, pay by bank is quick, requires no card details and uses the security of their own bank's authentication. Bill payers can also use recurring versions such as variable recurring payments.

Consumer protection is weaker than for cards in many markets, because a completed bank transfer generally cannot be charged back if goods do not arrive. Some schemes and providers are developing purchase protection rules to close this gap. Customers can also be tricked into approving transfers to fraudsters, a type of authorised push payment fraud; in the UK, payment service providers must reimburse many victims under rules introduced in 2024.

Other challenges include uneven bank performance, since some banks' apps and interfaces fail more often than others, and the need for merchants to handle refunds through separate outbound transfers. Customer habits are also a barrier: many shoppers are used to cards and digital wallets and may not trust a new method. Adoption has therefore grown fastest in bill payments, account funding and markets with strong national schemes.

Providers that initiate payments must be licensed, for example as payment institutions with permission for payment initiation services in the EU and UK. They must meet security, safeguarding and conduct requirements. Policymakers in several countries see pay by bank as a way to increase competition with card networks, and the UK and EU have both set out plans to extend open banking payments beyond single, one-off transfers.