Pay by bank app: Simple, fast and secure payments for UK businesses

Challenging traditional online payment methods, the Pay by bank app is an advanced payment processing method powered by open banking which enables shoppers to make instant account-to-account payments through the bank apps on their mobile devices, without the need of sharing any sensitive data with merchants.

Pay by bank is an ideal payment solution for merchants looking for a convenient checkout process that’s more secure and cost-effective, facilitates account-to-account payments and provides customers with a seamless payment experience

Let’s take a quick look at the evolution of bank payments, the influence of mobile and online banking solutions, the mechanisms and implications of open banking, and the potential of the Pay by bank app method to redefine the future of online payments. ‘Wonderful,’ which offers a Pay by bank app, API and e-commerce integrations, for online stores and in-person POS transactions, is at the forefront of this revolution.

Pay by bank app: Smarter payment solutions for smartphones

Smartphone technology has significantly transformed the e-commerce experience, including payment processing solutions. Modern payment methods, especially Pay by bank app, bypass card networks and help businesses save significantly on transaction fees. Biometric verification and two-factor authentication decrease fraud threats, ensuring safe transactions for businesses and consumers.

Additionally, mobile payment solutions integrate effectively with POS, inventory, and CRM systems, easing operations and giving data-driven insights on sales and customer behaviour. Businesses may make decisions backed by key analytics and plan better with these systems. Mobile payments are convenient and scalable, allowing businesses of all sizes to adapt and expand.

Merchant dashboard and analytics

Pay by bank app solutions give stores complete dashboard capability that transcends simple transaction processing. Comprehensive analytics tools covering real-time insights into payment flows, conversion rates, and settlement statuses constitute part of the connection. Through their dashboard, merchants may access consistent reporting tools tracking successful transactions, payment pattern analysis, and consumer preferences monitoring.

Businesses can generate full transaction histories, reconciliation reports, and settlement summaries using the reporting architecture. Merchants use this data to improve payment strategies and customer experience. Refunds, failed transactions, and payment success rates are usually managed on the dashboard. Merchants can also receive real-time settlement notifications and track payment statuses to improve cash flow visibility. These analytical capabilities enable data-driven payment operations choices and regulatory compliance through automated record-keeping and reporting.

Payment limit and security features

Bank app transactions typically go from £0.50 to £5,000, suitable for different retail and service payments. The security framework uses Strong Customer Authentication (SCA) as per PSD2 regulations, providing multiple layers of protection. Customers use their banking app to authenticate payments in a Pay by bank app, using methods like Face ID or fingerprint scanning.

Unlike traditional payment systems, transactions made with the Pay by Bank app do not call for stores to keep private financial information. Consumers are sent to the mobile app of their bank for authorisation of safe payments. Since every transaction requires direct identification via the customer's banking application, this approach greatly reduces the possibility of fraud relative to card payments. While the direct bank-to-bank transfer removes intermediate security concerns, the multi-factor authentication process ensures that only approved account holders can approve payments.

Expansion drive across Europe

Germany is scheduled to become a part of the flourishing Pay by bank app ecosystem in 2025. The new regulations on quick euro payments put out by the European Commission will help this expansion. This will lead to more secure and less expensive transactions. The robust Faster Payments Scheme in the UK has shown outstanding performance with this payment option, boasting an impressive 99.76% bank account penetration rate as of 2021.

More and more Europeans are using Pay by bank apps because of PSD3, which improves user privacy and access to the payment system. Germany, France, and the Nordic countries stand out for their impressive growth, thanks to their well-established payment infrastructure. Businesses and individuals are finding Pay by Bank more and more accessible as the network of partner banks and financial institutions increases.

Integration with national payment rails

Pay by bank app services take advantage of established national payment infrastructure, leveraging current banking networks and augmenting them with modern open banking capabilities. This interface enables real-time payment settlements over secure APIs, allowing for instant financial transfers between accounts. The system makes use of the UK's Faster Payments network, which allows for quick transaction processing while placing a high priority on security.

The connectivity goes beyond transfers to include speedy payment confirmation and automated reconciliation. Pay by bank app services that follow national payment frameworks can meet local laws and provide consistent service. This method streamlines payment processing while meeting compliance requirements.

Regulatory and compliance framework

Pay by bank app services operate on a rich set of financial rules, covering PSD2 and the upcoming PSD3 requirements. These guidelines ensure that payment providers have strict security measures in place while offering cutting-edge services. Financial Conduct Authority (FCA) regulation provides merchants and customers with an extra layer of safety by requiring the regulated providers to meet certain operation and security criteria.

The compliance framework is governed by Strong Customer Authentication, carries out regular security audits, and applies strict data protection standards according to GDPR specifications. Payment providers need to uphold precise reporting and open communication with customers, ensuring that every transaction is accurately tracked and documented. A strong regulatory environment fosters confidence in Pay by bank app services, offering clear guidelines for service providers and merchants utilising these payment systems.

Pay by bank app vs. A2A payments vs. Digital wallets

While traditional account-to-account payments have been an important part of bank transfers, digital wallets have added a new dimension to online payments since the launch of Google Pay in 2011. Now, with the growing popularity of open banking, Pay by bank transfers are gaining momentum. Let’s understand how Pay by bank differs from older payment methods.

Cost-effectiveness

Bank transfers: Traditional bank transfers like CHAPS charge a significant transaction fee for faster processing.

Digital wallets: Certain digital wallets may charge for fund deposits, currency conversions, and withdrawals. They may further charge a percentage on each transaction.

Pay by bank: It usually has lower transaction fees because it skips the traditional card networks and handles payments directly between banks. This is beneficial for both businesses and consumers, as firms can save big on transaction fees and pass on the benefits to their customers.

Transaction speed

Bank transfers: BACS takes up to 3 days to transfer funds to the merchant's account. Though CHAPS processes payments within two hours, it has a substantial fee.

Digital wallets: Typically, digital wallets provide instant transfers within the same wallet. It may take longer to transfer to another wallet or bank account.

Pay by bank: Pay by bank apps provide real-time settlement (typically just a few seconds) across multiple networks at a reduced cost.

Security

Bank transfers: Highly secure platforms, but multi-layered security checks make the process cumbersome.

Digital wallets: Despite robust security measures like encryption and biometric authentication, digital wallets are susceptible to cyberattacks.

Pay by bank: Pay by bank ensures a highly secure transaction environment by utilising bank-level security features such as two-factor authentication and secure API calls. Stringent regulatory compliances make them more secure than digital wallets, while maintaining other superior features compared to bank transfers.

Interoperability and integration

Bank transfers: Manual entry of account details for every transaction makes them less compatible with the modern e-commerce environment.

Digital wallets: Integrate seamlessly with most e-commerce platforms.

Pay by bank: The ease of integration through APIs and their interoperability with existing financial systems make them an ideal choice for modern-day online businesses.

Pay by bank app vs. Traditional bank payments

Traditional bank payments have been trusted online banking solutions for decades in the UK. From routine bill payments to large-volume corporate transfers, they have formed the backbone of the financial system in the country, with periodic modifications over the years. So, if conventional bank account payment methods provided safe transaction platforms, why was it necessary to introduce modern technologies like Pay by bank in the realm of online bank payments?

To understand the dynamics, let’s understand the mechanisms of traditional methods.

1. BACS (bankers’ automated clearing services): BACS, established in the 1960s, is a critical element of the UK's financial infrastructure. It’s primarily used for direct debit and credit transactions, including salary payments and utility expenses. BACS transactions are typically processed on a three-day cycle, making them less suitable for urgent payments but highly efficient for scheduled, recurring transactions. This system is a trustworthy method when it comes to cost-effectiveness and transactional security.​
2. CHAPS (clearing house automated payment system): First introduced in 1984, CHAPS processes same-day payments for high-value transactions within the UK. Large business-to-business payments or real estate purchases are ideal scenarios that benefit from using CHAPS as a chosen A2A payment method. However, the transaction must be initiated within a stipulated cut-off time to allow same-day payment. A costlier alternative to BACS, it scores due to its faster settlement time, a necessity for high-value deals.
3. Faster payments: Faster Payments, launched in 2008, catered to an increasing demand from business enterprises in the UK for quicker payments by permitting almost immediate bank account transfers. Unlike BACS, Faster Payments processes transactions in two hours. This 24/7 service benefits individuals and corporations due to its speed and operational convenience.

3 best Pay by bank app providers

1. Wonderful

Wonderful, a popular UK Pay by bank app provider, helps businesses accept payments straight from client bank accounts effortlessly and affordably. The platform processes payments in real time over a secure network and integrates with many e-commerce systems, such as WooCommerce payment gateways. Wonderful is a trusted name among UK enterprises and consumers as it comes with multiple advantages of the open banking system.​

2. Trustly

Pan-Europe Pay by bank service provider Trustly is a popular choice in the UK. It lets consumers pay from their bank accounts without a card or separate app. Many online retailers and consumers use Trustly for its fast transaction times and strong safety features.​

3. GoCardless

GoCardless specialises in direct debits and recurring payments, using Pay by bank. It simplifies direct bank account payment collection for businesses, minimising transaction fees and enhancing cash flow. GoCardless is popular with subscription-based services and organisations that require frequent payments.​

Pay by bank: Powered by open banking

How does open banking work and is my data safe?

Open banking is all about sharing financial data securely with authorised third-party online payment providers. This data sharing is facilitated via secure APIs, so authorised payment providers (regulated by the FCA) can integrate different financial services. The user's online bank account credentials, or more typically, biometric access to their mobile banking app, are used to quickly authenticate the payment in a trusted environment when they initiate a Pay by bank transaction.

Further, customers can use open banking services to analyse financial data to accelerate and improve decision-making. The open banking framework ensures that data is shared within a safe digital environment, which increases the overall efficiency of the financial ecosystem.

Implications of open banking for businesses and consumers in the UK

There are stringent, multi-layered compliance mandates that Pay by bank providers like Wonderful strictly follow. This reduces the possibility of fraud through greater security of business data and increased consumer trust. Strong Customer Authentication (SCA) is inherent in open banking payments, which dispense the need for CVVs, postcodes, one-time passwords (OTPs) and similar measures introduced to improve payments made via cards (a payment method introduced decades before e-commerce was even considered!)

Consumers have greater flexibility in deciding which information to share, which makes the transaction experience smoother for them, and consent lies with them. Open banking’s cutting-edge features, such as Pay by bank transfers, empower businesses to streamline operations and provide a better customer experience, which is pivotal to sustained business growth. This API-enabled mechanism seamlessly integrates with existing legacy systems, which mitigates significant investments in technology upgrades.

Is there a standard API to connect to bank accounts?

One of the key benefits of open banking is the standard, which mandates the biggest UK banks to provide access to regulated fintechs (like Wonderful) to connect and initiate payments - again, with the explicit consent of the customer to do so. These APIs make it easy for regulated financial service providers to access and work with bank account information, allowing them to offer a variety of services like payments and financial planning.

●     Open banking APIs: Open banking regulations in the UK require banks to provide standardised APIs. With the help of these APIs and customer consent, Pay by bank apps are able to initiate payment transfers. Open Banking Limited (OBL) is entrusted to regulate the security and interoperability of the APIs.

●     PSD2 APIs: In the EU, banks are now required by the Revised Payment Services Directive (PSD2) to open up their payment services and customer data to third-party providers using APIs. This rule is in the best interest of end users, making online payments and account access safer for everyone in the UK. PSD2-compliant APIs allow for services such as account information aggregation and payment initiation, which help to further integrate FinTech solutions with traditional banking systems.

●     Commercial API providers: Emerging organisations, such as Wonderful, Plaid, Truelayer and Yappily, offer APIs that integrate with a wide banking network in the UK. The unified interface of these APIs allows software developers to custom-build specific financial platforms that can access bank information, verify available balances, and initiate payments in a safe environment.

●     UK open banking standards: The UK Open Banking Standard is a set of guidelines and specifications that ensure that open banking APIs are super secure, reliable, and simple to use. This standardisation makes things a lot easier for third-party providers and banks, which in turn makes it convenient for fintech companies to develop and offer tailored financial services.

Is Pay by bank the future of payments in the UK?

The UK has been at the forefront of the adoption of Pay by bank solutions in Europe. Regulatory pushes like Payment Services Directive 2 (PSD2) are driving this trend as they mandate open banking practices. The UK's Competition and Markets Authority (CMA) has stepped up by enforcing rules that encourage direct bank payment expansion. Their efforts are creating an inviting space for this type of financial service. Let’s look at some of the statistical insights:

1. Growing consumer adoption: Open Banking reveals that 1 in 9 people in the UK has adopted the Pay by bank method for online payments. This is driven by the safety and convenience of open banking platforms like Wonderful.
2. Small businesses are leading the way: Due to its enhanced operational efficiency and cost savings, small businesses are quickly turning to this payment method. About 17% of small enterprises in the UK have joined this payment revolution.
3. Significant growth in transaction volume: The volume of open banking payments has increased significantly, with 9.7 million transactions recorded in June 2023 alone, representing an 88% increase from the same month in the previous year. The approximately £4.5 billion total monthly value of this payment method serves as a reminder of its significant economic impact. The global scenario also looks promising, a study from Juniper research has found that open banking transactions will grow from $57 billion in 2023 to $330 billion in 2027.
4. The younger generation is the early adopter: Like most technological revolutions, younger consumers are moving towards Pay by bank. Research published on Tink suggests about 12% of the population in the age bracket of 18-34 has shown a strong preference for faster and safer modes, like Wonderful’s Pay by bank platform.

Technological developments, regulatory support, and rising acceptance rates point to a bright future for Pay by bank payment apps. Key drivers include improved security and efficiency, strong regulatory support from authorities such as the FCA, and the expansion of use beyond retail into industries such as insurance and utilities. Furthermore, the global growth of open banking efforts in regions such as North America and Asia is expected to drive the broad adoption of Pay by bank solutions, altering how we conduct online transactions.

FAQs

What is Pay by bank and how it helps save big?

With Pay by bank, clients can avoid using their credit cards by making direct transfers from their bank accounts. In addition to lowering transaction fees—which can be as low as 1p per transaction—and reducing the likelihood of fraud and chargebacks, it helps save a significant amount of money for businesses and customers alike.

What is the suggested payment method for a website?

Online buyers prefer multiple payment options. Hence, a user-friendly e-business should maintain various payment options, including Pay by bank.

Are there payment methods I can use with no payment fees?

Pay by bank app is one of the most cost-effective online payment solutions that may even come without fees for some organisations.

What is FCA and how do I know if a company is FCA registered?

The Financial Conduct Authority, or FCA regulates UK financial transactions to ensure transparency and integrity. The FCA's online register of individuals and organisations can be used to verify a firm's registration. They also list the firms' permitted operations.

What are the two types of FCA authorisation for firms?

Firms can be authorised by the FCA in two ways: full authorisation, which is necessary for firms carrying out regulated activities, and limited authorisation, which applies to firms carrying out lower-risk activities that do not require full authorisation, like a credit broker.

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