What Is Pay by Bank and How Does It Actually Work?

Pay by Bank is a way for customers to pay you directly from their bank account, completely cutting out the usual credit or debit card networks. Think of it as a secure digital handshake between the customer’s banking app and your business, approved instantly with a fingerprint or face ID. It's faster, cheaper, and a whole lot safer than taking a card payment.

What Is Pay by Bank in Simple Terms?

At its heart, Pay by Bank is a modern payment method built on Open Banking technology. It gets rid of the middlemen—like the big card schemes—that sit between you and your customer. Instead of someone having to read out a 16-digit card number over the phone, they just get a secure link.

That link takes them straight to their own trusted mobile banking app. Once there, all the payment details, like the amount and who they’re paying, are already filled in. The customer just needs to approve it using their normal secure login, like their fingerprint. It's a smooth, familiar process that builds trust and means far fewer people drop off before completing the payment.

For businesses, this direct connection is a game-changer. You can dig deeper into the fundamentals in our complete guide on Pay by Bank.

A Modern Alternative to Cards

This direct account-to-account model isn't some niche idea; it's quickly becoming a go-to payment choice here in the UK. Adoption has skyrocketed as both people and businesses have cottoned on to how much better it is than the old ways.

The growth has been incredible. Projections show UK user numbers hitting 15 million by July 2025, with a mind-boggling 29.89 million payments processed in that month alone. This surge cements its status as the fastest-growing way to pay, making it perfect for contact centres that need to handle payments without worrying about fraud or complicated compliance rules. You can read the full breakdown of this record-breaking adoption.

To put it simply, Pay by Bank offers a streamlined, secure, and genuinely cost-effective way to get paid.

Pay by Bank at a Glance

Here’s a quick summary of what makes Pay by Bank such a compelling alternative to card payments.

Feature	Description	Benefit for Your Business
Direct Bank Transfer	Funds move directly from the customer's bank to yours via the Faster Payments network.	Reduces transaction fees significantly compared to card payments.
Bank-Grade Security	Payments are authorised within the customer's own secure banking app using biometrics.	Virtually eliminates fraud and chargebacks, simplifying compliance.
No Card Details	Sensitive card numbers are never shared, handled, or stored by your business.	Drastically reduces your PCI DSS scope and associated costs.

As you can see, the core benefits centre on reducing costs, slashing fraud, and taking the headache out of compliance.

How a Pay by Bank Transaction Works Step by Step

Knowing what Pay by Bank is is one thing; seeing it in action shows you just how simple it really is. The whole process is designed to be completely frictionless for the customer, getting rid of the usual hassles of card payments while keeping everything incredibly secure. It turns a potentially clunky payment process into a smooth, fast, and trustworthy experience.

The journey starts when a customer is ready to pay, whether that's at an online checkout or while talking to an agent in a contact centre. Instead of asking for card details, the business simply offers the ‘Pay by Bank’ option. This kicks off a secure, bank-led authorisation flow that’s over in moments.

This diagram shows just how straightforward the journey is, from the customer's first click to the business getting confirmation.

As you can see, the entire transaction stays within the secure walls of the business and the customer's own bank. No sensitive data ever gets exposed.

The Customer Authorisation Flow

Let’s walk through the exact steps a customer takes. This sequence is the same whether they get a payment link via email, SMS, or are guided by an agent over the phone.

1. Initiation: The customer chooses ‘Pay by Bank’ or receives a secure payment link. This could be on a website, in a mobile app, or sent directly from a customer service agent.
2. Redirection: They’re instantly and securely sent to their chosen bank's online portal or, more often, their mobile banking app. The handover is completely seamless.
3. Authentication: The customer logs in to their banking app using their normal, super-secure method—usually biometrics like a fingerprint or Face ID, or their familiar password. This is the first layer of real bank-grade security.
4. Confirmation: Inside the app, all the payment details are already filled out. The business’s name and the exact amount are pre-populated, which completely removes the risk of someone typing in the wrong details.
5. Authorisation: With a single tap, the customer approves the payment. They are then automatically whisked back to the merchant's checkout or confirmation page.

The entire process just feels natural because it uses the banking app the customer already knows, uses, and trusts every day.

The real strength of this flow is that the business never sees or handles the customer's banking login details. The approval happens directly between the customer and their bank, which massively cuts down the risk and compliance headaches for the merchant.

Instant Confirmation and Settlement

Once the customer gives the green light, the real magic happens behind the scenes. The money is transferred immediately using the UK's Faster Payments Service (FPS). This means no more waiting around for funds to clear, which can happen with other payment methods.

The business gets an instant confirmation that the payment was successful, allowing them to fulfil the order or service right away. For example, an insurance policy can be activated on the spot, or a utility bill can be marked as paid in real-time.

To see what this looks like in practice, you can watch a Pay by Bank payment demo that shows the user experience from start to finish. This immediate settlement and notification makes the entire process incredibly efficient for everyone involved.

Why Businesses Are Switching to Pay by Bank

The move towards Pay by Bank isn't just about chasing the latest tech trend; it's a smart, strategic decision. Businesses, especially those running busy contact centres, are switching because it directly solves four of their biggest headaches: sky-high fees, lost sales, rampant fraud, and the nightmare of compliance.

This simple, bank-to-bank payment method gets rid of all the middlemen and weak spots found in traditional card payments. It’s a cleaner, faster, and safer process that makes a real difference to your bottom line and keeps your customers happy. Let's break down exactly how.

Dramatically Lower Transaction Costs

Let’s be honest, one of the main reasons businesses are making the switch comes down to simple economics. Traditional card payments are tangled in a complex web of fees—interchange fees, scheme fees, acquirer markups—that quietly chip away at your revenue. These percentage-based costs really sting, especially when you're processing high volumes or high-value transactions.

Pay by Bank completely sidesteps this expensive, outdated infrastructure. Because the payment moves directly from your customer’s bank to yours using the Faster Payments network, the costs are tiny in comparison. You're typically looking at a small, fixed fee for each transaction, no matter how big it is.

For a charity, this is a game-changer. It means more of every donation actually reaches the cause. For an insurer, collecting a £500 premium costs the same as a £50 one, protecting their margins on every single policy.

Higher Conversion and Fewer Abandoned Payments

Nothing kills a sale faster than a clunky payment process. We’ve all been there. Customers today have zero patience for being asked to hunt for their wallet and manually punch in a 16-digit card number, expiry date, and CVC code. It’s a friction-filled experience that causes people to give up, especially if they’re on a mobile or talking to you on the phone.

Pay by Bank, on the other hand, offers a beautifully simple, mobile-first journey. The customer is guided straight to their own trusted banking app to approve the payment with a quick tap of their fingerprint or Face ID. All the payment details are pre-filled, which eliminates typos and builds confidence. This seamless experience is proven to slash payment abandonment and boost conversion rates, turning more conversations into cash.

To put it in perspective, let's compare the two side-by-side.

Pay by Bank vs Traditional Card Payments

It's clear to see how the modern, direct approach of Pay by Bank stacks up against the legacy card system. For merchants, the benefits in cost, security, and customer experience are compelling.

Aspect	Pay by Bank (Open Banking)	Traditional Card Payments
Transaction Fees	Low, often a fixed fee per transaction.	Complex and high (interchange, scheme, acquirer fees).
Customer Journey	Seamless mobile-native flow via banking app.	Manual 16-digit card number entry required.
Authentication	Bank-grade Strong Customer Authentication (SCA).	Relies on CVC and address checks, which can be weak.
Fraud Risk	Near-zero, as payments are authenticated and irrevocable.	High risk of CNP (Card-Not-Present) fraud.
Chargebacks	Eliminated. Payments cannot be reversed.	A constant risk, leading to revenue loss and admin work.
PCI DSS Scope	Drastically reduced or eliminated entirely.	A major compliance burden requiring significant investment.

Ultimately, the choice comes down to embracing a more efficient future or sticking with a costly, risk-prone past.

Near-Elimination of Fraud and Chargebacks

Fraud is a constant battle for any business that takes card payments. And chargebacks, whether they're from genuine disputes or so-called "friendly fraud," are a massive drain on time and money. With Pay by Bank, you can practically wave goodbye to both of these problems.

Every single payment is authenticated directly by the customer's own bank using Strong Customer Authentication (SCA). This is a multi-layered process, usually involving biometrics like a fingerprint, that confirms the payer's identity with bank-level security. Because the payment is pushed directly from their account, it's final and cannot be reversed.

This means two crucial things for your business:

• No fraudulent transactions: Stolen card details are completely useless here.
• No chargebacks: Once a payment is made, it stays made.

This level of security gives you incredible peace of mind and locks down your revenue.

Simplified PCI DSS Compliance

If you handle card payments, you know the pain of Payment Card Industry Data Security Standard (PCI DSS) compliance. It's a huge operational and financial weight to carry. The rules are strict, the audits are stressful, and the penalties for getting it wrong are severe.

Pay by Bank is the ultimate compliance shortcut. Because your systems and agents never see, handle, or store any sensitive card details, your compliance burden just melts away. In fact, adopting a solution like this can shrink your PCI DSS scope by up to 95%. Think of all the time, money, and resources that frees up—all of which can be put back into growing your business instead of just protecting it.

The Security Framework Behind Open Banking Payments

When you’re handling customer payments, security isn't just a feature; it's the bedrock of trust. The good news is that Pay by Bank is built on one of the most robust security frameworks out there, engineered from the ground up to protect both you and your customers. We’re not just talking about good security; this is bank-grade secure.

The entire system operates under the UK's Open Banking framework, a government-backed initiative regulated by the Financial Conduct Authority (FCA). This means every provider, and every single transaction, has to play by strict rules designed for maximum safety and transparency.

The Role of Strong Customer Authentication

At the heart of this security is Strong Customer Authentication (SCA). Unlike traditional card payments that often rely on static details like a CVC number, SCA demands dynamic, multi-factor proof that the customer is who they say they are.

Think about logging into your own banking app. You probably use a combination of things only you have:

• Knowledge: Something you know, like a password or PIN.
• Possession: Something you have, like your smartphone.
• Inherence: Something you are, like your fingerprint or face.

SCA mandates that at least two of these factors are used before any payment gets the green light. This multi-layered approach makes it incredibly difficult for fraudsters to push through an unauthorised transaction, as they'd need to compromise several independent security measures at once.

Keeping Credentials Private and Secure

Here’s a crucial point: with Pay by Bank, third-party providers—including your business—never see, handle, or store a customer's banking credentials. When a customer approves a payment, they are interacting directly and exclusively within their own bank's secure environment. All the sensitive authentication happens there, completely siloed from your systems.

This separation is fundamental. It means your business is never exposed to sensitive login data, drastically reducing your risk profile and removing a huge compliance headache.

On top of that, platforms like Paytia add even more layers of protection. Using advanced techniques like tokenization and end-to-end encryption, all payment data transmitted is shielded from interception, ensuring it remains fully compliant with regulations like GDPR.

This secure model is clearly resonating in the UK payments landscape. We're now seeing 18.4% of online account users actively using Open Banking, with 9 million monthly users and growing. This growth is built on a foundation of increasing trust, with 51% of consumers saying banks have improved how they protect them from harm. As these technologies become more common, it’s also useful to understand other alternative payment methods to get the full picture.

How Industries Are Using Pay by Bank in the Real World

The real power of Pay by Bank shines when you see it solving everyday business problems. For contact centres and service-driven industries, this isn't just theory—it's a payment method that delivers tangible results, making processes faster, cheaper, and more secure for everyone.

Its versatility is a key reason for its rapid growth. In March 2023, Pay by Bank transactions hit a record 27.2 million in the UK. With an average transaction value of £473, it’s clear this method is just as good for small purchases as it is for settling larger bills.

This trend marks a major shift away from traditional card payments. It's especially welcome news for businesses like contact centres that can slash their PCI DSS compliance burdens by up to 90-95% with secure platforms. You can dig into the numbers in the official Open Banking impact report.

Boosting Efficiency in Insurance and Financial Services

Picture this: an insurance agent is on the phone with a customer who needs to renew their policy. Instead of the slow and risky process of reading out card numbers, the agent simply sends a secure payment link via SMS or email. The customer taps the link, approves the payment in their own banking app, and the policy is active instantly.

This simple workflow solves several headaches at once:

• Immediate Activation: No more waiting for funds to clear. The policy is live the moment the payment is confirmed.
• Reduced Admin: Payments are reconciled automatically, which means less manual data entry and no more chasing late payments.
• Enhanced Security: Sensitive card data is never spoken over the phone, protecting both the customer and the business from fraud.

Streamlining Payments for Utilities and Housing

Utilities companies and housing associations deal with a massive volume of recurring monthly payments. A single missed or late payment creates a domino effect of administrative work and can even disrupt services. Pay by Bank offers a much smoother path for everyone.

A customer can use an automated Interactive Voice Response (IVR) system to pay their bill without ever needing to speak to an agent. They just authenticate the payment on their mobile banking app. In the same way, a housing association tenant can log into a self-service portal and pay their rent in seconds.

The payment is confirmed immediately, giving them peace of mind and reducing the need for staff to make follow-up calls.

The core benefit here is empowerment. Customers get a fast, self-service option they can trust, while your team is freed from repetitive payment collection tasks to focus on more complex customer needs. This direct, agent-less approach improves efficiency and customer satisfaction.

How to Start Accepting Pay by Bank Payments

You might think that adopting a new payment method like this involves a massive, complex overhaul of your existing systems. The good news is, it doesn't. Getting started with Pay by Bank is surprisingly straightforward. Modern platforms are built for easy integration, letting you start taking direct bank payments quickly and without a major technical headache.

The trick is to find a provider that offers flexible ways to deploy the solution. You want something that fits neatly into how you already work, whether that's in a busy contact centre or through a self-service customer portal. The whole point is to add a new capability, not disrupt your entire operation.

Finding the Right Integration Path

For most businesses, there are three main ways to bring Pay by Bank into the fold. Each one is designed for a different kind of operational setup, from live agent chats to completely automated payment flows. A good provider will help you figure out which model—or maybe a mix of them—is the right fit for you.

These options typically include:

• Agent-Assisted Solutions: This is perfect for contact centres. Your agents can generate and send secure payment links in real-time while on the phone or in a web chat with a customer.
• Self-Service Channels: Ideal for automated systems you already have, like an Interactive Voice Response (IVR) or your online customer portal. This lets customers pay bills or make purchases 24/7 without needing to speak to anyone.
• API Integrations: If you need a completely custom setup, APIs let you build Pay by Bank functionality directly into your own software and applications for a seamless, branded experience.

Choosing a Secure and Simple Platform

This is the most important step: picking a payment partner who obsesses over both security and simplicity. Look for a platform that plays nicely with your existing telephony, CRM, and payment gateways. The best solutions will handle all the complex Open Banking security stuff behind the scenes, taking the compliance burden right off your shoulders.

A strong provider won’t just give you a way to take a payment. They’ll offer a complete toolkit that makes every transaction audit-ready and compliant with regulations like GDPR. This frees you up to focus on the good stuff—lower costs, zero fraud, and a better customer experience—without sweating the technical details.

By working with an expert, you can get a solution up and running that starts delivering real value from day one.

Common Questions About Pay by Bank

When you’re looking at bringing in a new payment method, it's only natural to have a few questions pop up. We get it. To help clear things up, here are some of the most common queries we hear from businesses exploring Pay by Bank.

Is It Genuinely Secure for My Customers?

Absolutely. In fact, security is the bedrock of the entire Pay by Bank system. It’s regulated by the Financial Conduct Authority (FCA) and built on top of the same bank-grade security protocols that protect billions of pounds every day.

The key is that every single payment has to be authorised by the customer directly from inside their own trusted banking app. This uses Strong Customer Authentication (SCA), which almost always means biometrics like a fingerprint or facial recognition. Your business never sees or touches their sensitive login details, making it one of the most secure ways to pay.

Do All UK Banks Support This?

The coverage is fantastic. Because Pay by Bank is powered by the UK's Open Banking initiative, it’s supported by nearly every major high-street bank and financial institution.

This wide adoption means the vast majority of your customers will already have everything they need to pay you this way. You can roll it out with confidence, knowing it won't hit any compatibility roadblocks.

How Is This Different From a Standard Bank Transfer?

While both ultimately move money between bank accounts, the experience for both you and the customer is night and day. A normal bank transfer is a clunky, manual process. Your customer has to meticulously copy and paste account numbers, sort codes, and payment references, leaving plenty of room for typos and errors.

Pay by Bank automates the whole thing. The payment details are pre-filled, which gets rid of mistakes and turns the payment into a simple, one-tap approval. On your end, this also means payments are reconciled automatically, saving your team a ton of admin headaches.

How Quickly Can We Get Up and Running?

Getting started is much faster and simpler than most people think. With a dedicated payment platform, you can be live in a matter of days, not the weeks or months you might associate with traditional payment projects.

Modern solutions are designed for quick deployment and integrate smoothly with the CRM and telephony systems you already use. This lets you start seeing the benefits—like lower costs and less fraud—almost immediately.

Ready to simplify your payments and cut down your PCI scope? See how Paytia makes accepting secure, instant bank payments completely effortless. Learn more and get started at Paytia.com.