The UK payments landscape is undergoing its most significant transformation since the introduction of chip and PIN. Open banking — the technology that allows customers to pay businesses directly from their bank account, without using a card — has moved from regulatory concept to commercial reality. Yet card payments remain the dominant method for the vast majority of UK transactions, with an infrastructure built over decades and consumer habits that are deeply entrenched.
For businesses evaluating their payment strategy, the question is no longer whether open banking is viable but how it compares to card payments across the metrics that actually matter: cost, security, customer experience, regulatory compliance, and future trajectory. This analysis provides a clear-eyed comparison to help UK businesses make informed decisions about their payment mix.
How Each Payment Method Works
Card payments: the established model
When a customer pays by card — whether by tapping a terminal, entering details online, or providing card information over the telephone — the transaction passes through a chain of intermediaries. The customer's card issuer, the merchant's acquiring bank, and the card network (Visa, Mastercard, or American Express) all play a role in authorising, clearing, and settling the payment. Each intermediary adds cost and introduces processing time.
The typical settlement cycle for a card payment is one to three business days. During this period, the funds move from the customer's card issuer through the network to the merchant's acquirer and finally into the merchant's bank account. Chargebacks — where the customer disputes a transaction and the card network reverses it — can occur for up to 120 days after the original payment, creating an extended period of financial uncertainty for the merchant.
Open banking: the direct model
Open banking payments — sometimes marketed as "pay by bank" — work differently. When a customer chooses to pay via open banking, they are redirected to their own banking app or online banking portal, where they authenticate the payment using their existing banking credentials and any additional security measures their bank requires (typically biometric verification or a PIN). The payment is then initiated as a direct bank transfer from the customer's account to the merchant's account.
This model eliminates the card networks entirely. There is no Visa or Mastercard in the middle, no acquiring bank processing the transaction through a card scheme, and no interchange fee. The payment travels directly between the two bank accounts, typically settling within seconds through the UK's Faster Payments network.
Cost Comparison
Cost is frequently cited as the primary advantage of open banking over card payments, and the numbers support this claim — though the full picture is more nuanced than headline comparisons suggest.
Card payment costs
The cost of accepting a card payment comprises several components. Interchange fees — set by the card networks and paid by the merchant's acquirer to the customer's card issuer — typically range from 0.2% to 0.3% for consumer debit cards and 0.3% to 0.6% for consumer credit cards in the UK, following the interchange fee regulation caps introduced in 2015. On top of interchange, the card network charges a scheme fee (typically 0.02% to 0.05%), and the merchant's payment processor adds its own margin.
All in, a typical UK business pays between 0.5% and 2.5% of the transaction value for each card payment, depending on the card type, the processing arrangement, and the volume of transactions. For a business processing one million pounds in card payments annually, this represents a cost of between five thousand and twenty-five thousand pounds per year — a significant operational expense.
There are also fixed costs to consider. Payment gateway fees, terminal rental charges (for face-to-face transactions), PCI DSS compliance costs, and chargeback fees all add to the total cost of card acceptance. For businesses with a high proportion of low-value transactions, the per-transaction fixed fees can be particularly punitive.
Open banking costs
Open banking payment providers typically charge a flat fee per transaction — commonly between 0.1% and 0.5% of the transaction value, or a fixed fee of between two and fifty pence per transaction, depending on the provider and the volume. There are no interchange fees, no scheme fees, and no acquiring bank margins.
For most businesses, open banking represents a cost saving of between 50% and 80% compared to card payments on a per-transaction basis. The saving is most dramatic for debit card transactions (where the gap is narrower) and for high-value transactions (where percentage-based card fees result in large absolute costs that open banking's flat or lower-percentage fees avoid entirely).
However, open banking is not cost-free beyond the per-transaction charges. Integration costs, potential charges for failed payment attempts, and the cost of managing a payment method that customers may not yet be familiar with must all be factored in. The total cost of ownership depends on the business's specific circumstances.
The bottom line on cost
Open banking is cheaper than card payments for the vast majority of transaction types and business sizes. The saving is meaningful and ongoing. For businesses processing significant volumes, switching even a portion of card transactions to open banking can generate substantial annual savings. This is not a marginal difference — it is a structural cost advantage that will persist as long as card networks maintain their current fee models.
Security Comparison
Both payment methods are secure when implemented correctly, but they achieve security through fundamentally different mechanisms — and their vulnerability profiles are quite different.
Card payment security
Card payments rely on the PCI DSS framework to protect cardholder data throughout the transaction chain. Every entity that stores, processes, or transmits card data must comply with this standard, which imposes hundreds of specific security controls. The system works, but it places a significant compliance burden on merchants — particularly those that handle card data directly, such as businesses taking payments over the telephone.
The fundamental security challenge with card payments is that the card number itself is the primary credential. Unlike a password, it cannot be easily changed. Unlike a biometric, it can be copied. Once a card number is compromised — through a data breach, a phishing attack, or even someone overhearing it during a phone call — it can potentially be used for fraudulent transactions until the card is cancelled and replaced.
The industry has layered additional security on top of this foundation: EMV chip technology for in-person transactions, 3D Secure for online payments, tokenisation to avoid storing raw card numbers, and sophisticated fraud detection systems. These measures have dramatically reduced fraud rates, but the underlying vulnerability — that card numbers are shareable secrets — remains.
Open banking security
Open banking takes a fundamentally different approach. The customer authenticates directly with their bank, using their own banking credentials and security measures. The merchant never receives, sees, or stores any banking credentials or account details. There is no shared secret that could be compromised at the merchant level.
Strong Customer Authentication (SCA), mandated under the Payment Services Regulations 2017 (as amended), requires that every open banking payment is authenticated using at least two independent factors — typically something the customer knows (a PIN or password) and something the customer has (their mobile device) or something the customer is (biometric verification). This is not optional or configurable; it is a fundamental requirement of the technology.
The absence of card numbers from the transaction means that open banking payments are inherently immune to the most common forms of card fraud. There is no card number to steal, no CVV to phish, and no magnetic stripe to skim. The payment can only be initiated by someone who has access to the customer's banking credentials and can pass their bank's authentication requirements — a substantially higher bar than possessing a sixteen-digit card number.
Chargebacks and disputes
One significant security-related difference lies in how disputes are handled. Card payments support chargebacks — a process where the customer can dispute a transaction through their card issuer and have the funds reversed. While chargebacks serve as an important consumer protection mechanism, they also create a fraud vector. "Friendly fraud" — where a customer makes a legitimate purchase and then disputes it to recover the funds while keeping the goods or services — costs UK merchants hundreds of millions of pounds annually.
Open banking payments, being direct bank transfers, do not carry automatic chargeback rights. This is an advantage for merchants (reduced fraud and dispute costs) but a consideration for consumers (less automatic protection if something goes wrong). The Payment Systems Regulator is examining how consumer protections should evolve for open banking payments, and this is an area where the regulatory framework is still developing.
Customer Experience
The customer experience of each payment method varies significantly depending on the channel — in-person, online, or over the telephone.
Online payments
For online transactions, card payments benefit from decades of optimisation. Customers are familiar with entering card details into checkout forms, and features such as saved cards, one-click purchasing, and digital wallets (Apple Pay, Google Pay) have reduced friction to the point where a card payment can be completed in seconds.
Open banking for online payments requires the customer to select their bank, be redirected to their banking app or website, authenticate the payment, and return to the merchant's site. The process takes slightly longer than a saved card payment but is comparable to a first-time card entry. The experience varies between banks — some offer seamless app-based approval in seconds, while others require navigating through online banking portals that were not designed with payment approval in mind.
In-person payments
For face-to-face transactions, contactless card payments set the standard for speed and simplicity. A tap of the card or phone completes the transaction in under a second. Open banking does not yet have an equivalent in-person experience, though QR code-based payments (where the customer scans a code and approves the payment in their banking app) are gaining traction in some markets. In the UK, in-person open banking remains uncommon and is not a practical replacement for card terminals at this stage.
Telephone payments
For telephone payments, the comparison is particularly interesting. Traditional card-over-the-phone processes require the customer to read their card number, expiry date, and CVV aloud to an agent — a process that is slow, error-prone, and creates security concerns around call recordings and agent access to card data. Secure alternatives such as DTMF masking improve the experience by allowing keypad entry, but the customer still needs their physical card to hand.
Open banking offers an alternative for telephone payments through pay by bank solutions. During a call, the agent can send the customer a secure link that initiates an open banking payment. The customer approves the payment in their banking app — no card needed, no details spoken aloud. For customers who do not have their card available or who are uncomfortable reading card details over the phone, this can be a significantly better experience.
Consumer familiarity and trust
The most significant customer experience advantage that card payments hold is familiarity. UK consumers have been paying by card for over thirty years. The process is understood, trusted, and habitual. Open banking, while growing rapidly, is still unfamiliar to many consumers. Research from the Open Banking Implementation Entity suggests that awareness of open banking among UK adults has increased significantly since 2020, but a substantial proportion of the population has never used it and may be hesitant to try it for the first time.
This familiarity gap is closing, particularly among younger demographics and in specific use cases such as account-to-account transfers and subscription payments. But for the time being, offering open banking as the sole payment method would alienate a significant proportion of customers. The practical approach for most businesses is to offer both methods and let customers choose.
Regulatory Landscape
Both payment methods operate within extensive regulatory frameworks, but the nature and direction of regulation differ significantly.
Card payment regulation
Card payments are governed by PCI DSS (a global industry standard), the Payment Services Regulations 2017 (UK legislation implementing the revised Payment Services Directive), the Interchange Fee Regulation (which caps interchange fees for consumer cards), and sector-specific regulation from the FCA for firms involved in payment processing.
The regulatory burden for card acceptance is well-established but substantial. PCI DSS compliance, in particular, represents a significant ongoing cost — especially for businesses that handle card data directly rather than using fully outsourced payment solutions. As discussed in detail in our analysis of PCI DSS 4.0.1, the latest version of the standard has increased requirements in several areas, making compliance more demanding and more expensive.
Open banking regulation
Open banking in the UK was created by regulation — specifically, the Competition and Markets Authority's 2017 Order requiring the nine largest UK banks to implement open banking standards. It operates under the Payment Services Regulations 2017, with oversight from the FCA for authorised payment institutions and the Payment Systems Regulator for systemic issues.
The regulatory framework for open banking is still maturing. The Joint Regulatory Oversight Committee (JROC), comprising the FCA, the Payment Systems Regulator, HM Treasury, and the Competition and Markets Authority, published its roadmap for the future of open banking in 2023 and has been driving forward a series of reforms. These include the establishment of a new commercial framework for open banking payments, enhanced consumer protections, and the development of a long-term regulatory model that will eventually replace the CMA Order.
For businesses, the key regulatory advantage of open banking is the absence of PCI DSS requirements. Because the merchant never handles banking credentials or account details, there is no cardholder data environment to secure and no PCI compliance obligation associated with open banking payments. This represents a meaningful reduction in regulatory burden and cost.
Adoption Rates and Market Trends
Understanding current adoption rates helps businesses assess the practical viability of each payment method.
Card payments: dominant but mature
Card payments accounted for over 57% of all UK payments in 2024, according to UK Finance data. Debit cards are the single most popular payment method in the country, used for everything from a morning coffee to monthly mortgage payments. Credit card usage, while lower in volume, remains significant — particularly for higher-value purchases and transactions where consumers value the additional protection of Section 75 of the Consumer Credit Act.
However, card payment growth has plateaued. The rapid shift from cash to cards that characterised the 2010s and accelerated during the pandemic has largely run its course. Card payment volumes are still growing, but at a much slower rate than in previous years. The market is mature, and the infrastructure providers — Visa, Mastercard, and the major acquirers — are focused on defending their position rather than expanding it significantly.
Open banking: rapid growth from a smaller base
Open banking payment volumes in the UK have grown substantially year on year. The Open Banking Implementation Entity reported over 11.4 million open banking payments per month by mid-2024, with annual growth rates exceeding 50%. While this remains a fraction of total card payment volumes, the trajectory is clear and the acceleration is notable.
Adoption is concentrated in specific segments. Bill payments, account funding for investment and savings platforms, and e-commerce transactions — particularly for higher-value items — are the primary use cases driving growth. Subscription payments, where the recurring nature of the transaction amplifies the cost saving, are also showing strong adoption.
The business case for accepting open banking is strengthening as adoption grows. Each percentage point of transactions shifted from cards to open banking delivers direct cost savings. And as more consumers experience open banking through high-profile use cases — such as HMRC tax payments, which now accept pay-by-bank — familiarity and trust are building across the broader population.
Refunds, Reconciliation, and Operational Considerations
The operational reality of managing each payment method day-to-day differs in ways that are not always captured in headline comparisons.
Refunds
Card refunds are well-established and straightforward from the merchant's perspective — the acquiring bank reverses the transaction through the card network, and the funds are returned to the customer's card. The process typically takes three to five business days and is handled through the merchant's existing payment infrastructure.
Open banking refunds are less standardised. Because the original payment was a bank transfer, the refund must be initiated as a separate outbound payment from the merchant's bank account. Some open banking providers offer refund APIs that automate this process, but others require manual intervention. The operational overhead is slightly higher, and the process is less familiar to most finance teams.
Reconciliation
Card payment reconciliation involves matching transactions across the payment gateway, the acquiring bank, and the merchant's bank account — with settlement delays of one to three days creating timing differences that must be managed. This is a well-understood process, but it generates ongoing administrative work, particularly for businesses with high transaction volumes.
Open banking payments settle directly into the merchant's bank account, typically within seconds. This near-instant settlement simplifies reconciliation significantly — the payment appears in the bank account almost immediately, making it straightforward to match against invoices or orders. For businesses where cash flow visibility is important, this is a material operational advantage.
Failed payments and retries
Card payments can fail for numerous reasons — insufficient funds, expired cards, fraud detection triggers, or technical issues. Most payment processors offer automated retry logic for recurring payments, and the customer can attempt the payment again with a different card.
Open banking payment failures are typically final — if the customer's bank declines the payment (due to insufficient funds or an authentication failure), the customer must restart the process. There is no retry mechanism equivalent to re-presenting a card payment. This can increase the operational overhead of chasing failed payments, particularly for recurring billing.
Future Outlook
The trajectory for both payment methods over the next three to five years is reasonably clear, though the speed of change is harder to predict.
Cards: evolution, not revolution
Card payments will remain the dominant payment method in the UK for the foreseeable future. The infrastructure is too deeply embedded, consumer habits too ingrained, and the advantages of credit cards (consumer protection, rewards, credit facility) too valuable to be displaced quickly. However, the cost structure of card payments is under pressure from multiple directions — open banking competition, regulatory scrutiny of interchange fees, and merchant pushback against scheme fee increases.
Expect card networks to respond with innovation: faster settlement times, improved fraud prevention through AI, and enhanced digital wallet experiences. The card industry is not standing still, and the competition from open banking is likely to drive improvements that benefit merchants and consumers regardless of which payment method they prefer.
Open banking: from alternative to mainstream
Open banking is on a path from niche alternative to mainstream payment method, but the timeline depends on several factors. Consumer education and trust-building are essential. The development of the commercial framework recommended by JROC will determine the long-term economics for all participants. And the resolution of outstanding issues — particularly around consumer protections and the refund experience — will affect whether open banking can compete with cards across all use cases, not just the cost-sensitive ones where it currently excels.
Variable Recurring Payments (VRPs) — which allow businesses to collect varying amounts from a customer's bank account on an agreed schedule, similar to a direct debit but with instant settlement and lower cost — represent the next major frontier. If VRPs achieve broad adoption, they could displace not only card-on-file subscriptions but also direct debits for a wide range of recurring payment use cases.
What Should UK Businesses Do?
The evidence points clearly towards a multi-method payment strategy rather than an either-or choice.
Continue accepting cards
Card payments are expected by customers and essential for business. Removing card acceptance would alienate a large proportion of your customer base. However, review your card processing arrangements regularly to ensure you are getting competitive rates, and invest in secure processing technology — particularly for telephone payments, where PCI DSS compliance costs are highest.
Add open banking as a payment option
If you are not already offering pay by bank as a payment method, now is the time to evaluate it seriously. The cost savings are real and immediate. The security model is superior for many use cases. And early adoption positions your business ahead of competitors who will inevitably follow as consumer demand grows.
Consider channel-specific strategies
The optimal payment method varies by channel. For in-person transactions, cards remain the best experience. For online payments, offering both cards and open banking gives customers choice and may improve conversion rates for high-value transactions where consumers are more cost-conscious or security-aware. For telephone payments, a combination of secure card processing (via DTMF masking) and pay-by-bank options provides the widest coverage and the best customer experience.
Monitor the regulatory landscape
Both card payment regulation (PCI DSS 4.0.1, interchange fee reviews) and open banking regulation (JROC roadmap, VRP framework) are evolving. Businesses that stay informed and adapt their payment strategies accordingly will be better positioned than those that treat their payment infrastructure as a fixed cost to be minimised rather than a strategic capability to be optimised.
Focus on what your customers want
Ultimately, the right payment mix is the one that serves your customers best while managing cost and risk effectively. Track which payment methods your customers use, how completion rates compare between methods, and where friction exists. Let the data guide your investment in payment infrastructure, and be prepared to shift your mix as customer preferences evolve.
The UK payments market is entering a period of genuine competition between established card networks and the emerging open banking ecosystem. For businesses, this competition is overwhelmingly positive — it drives down costs, improves security, and creates new options for delivering better customer experiences. The businesses that benefit most will be those that understand both payment methods, offer both where appropriate, and continuously optimise their approach as the market develops.