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

Challenging traditional online payment methods, Pay by Bank is an advanced payment processing solution powered by open banking. It enables shoppers to make instant account-to-account payments via their mobile banking apps, without the need to share any sensitive information with merchants.

What is the Pay by Bank payment method?

Pay by Bank is a modern payment method that enables customers to make secure, instant payments directly from their bank accounts, without the need for cards or intermediary services. It leverages open banking technology to facilitate account-to-account transfers in real-time, offering a fast, secure, and transparent alternative to traditional payment options.

Pay by bank app is an ideal payment solution for merchants seeking a convenient and cost-effective checkout experience. It facilitates direct bank payments, enhances security, and eliminates the need for handling sensitive card information. By streamlining the payment process, it provides customers with a seamless and efficient way to pay—improving satisfaction while reducing transaction costs and the risk of fraud or chargebacks.

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 payment 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

The rise of smartphone technology has revolutionised the e-commerce landscape and modern payment processing solutions.

Modern mobile payment solutions—such as the Pay by bank app—integrate effortlessly with point-of-sale (POS) systems, inventory tracking, and customer relationship management (CRM) platforms. This seamless integration streamlines business operations while delivering valuable, data-driven insights into customer behaviour and sales performance. With this intelligence, businesses can make informed decisions and enhance strategic planning.

Furthermore, Pay by Bank and similar innovations bypass traditional card networks, enabling businesses to substantially cut transaction fees. With features such as biometric authentication and two-factor verification, these solutions also strengthen payment security—minimising fraud and ensuring fast, frictionless transactions for both businesses and their customers.

Merchant dashboard and analytics

Pay by Bank solutions provide retailers with a comprehensive dashboard that goes far beyond basic transaction processing. Integrated analytics tools offer real-time insights into payment flows, conversion rates, and settlement statuses. Through this dashboard, merchants can access consistent reporting features to track successful transactions, analyse payment patterns, and monitor consumer preferences.

Businesses can generate transaction histories, reconciliation reports, and settlement summaries using the reporting architecture. Merchants can utilise 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 range from £0.50 to £5,000, making them suitable for a wide variety of retail and service payments. The security framework complies with PSD2 regulations by implementing Strong Customer Authentication (SCA), offering multiple layers of protection. Customers authenticate Pay by Bank payments using secure methods such as Face ID or fingerprint recognition within their banking app.

Unlike traditional payment systems, transactions made using the Pay by bank app do not require retailers to store sensitive financial information. Instead, consumers are redirected to their bank’s mobile app to securely authorise payments. As each transaction involves direct verification through the customer’s banking app, the risk of fraud is significantly lower compared to card-based payments. The direct bank-to-bank transfer eliminates intermediary security vulnerabilities, while multi-factor authentication ensures that only authorised account holders can approve transactions.

Expansion drive across Europe

Germany is set to join the growing Pay by bank app ecosystem in 2025, supported by new regulations on instant euro payments introduced by the European Commission. This development is expected to facilitate more secure and cost-effective transactions. The UK’s robust Faster Payments Scheme has already demonstrated strong performance with this payment method, achieving an impressive 99.76% bank account penetration rate as of 2021.

An increasing number of Europeans are adopting Pay by bank app solutions, driven in part by PSD3, which enhances user privacy and broadens access to the payments ecosystem. Countries such as Germany, France, and the Nordic nations are showing particularly strong growth, supported by their well-developed payment infrastructures. As the network of participating banks and financial institutions continues to expand, Pay by Bank is becoming increasingly accessible for both businesses and consumers.

Integration with national payment rails

Pay by bank app services utilise established national payment infrastructures, leveraging existing banking networks and enhancing them with modern open banking capabilities. This integration enables real-time payment settlements via secure APIs, allowing for instant financial transfers between accounts. The system utilises the UK’s Faster Payments network, ensuring swift transaction processing with a strong emphasis on security.

The connectivity extends beyond transfers to include rapid payment confirmation and automated reconciliation. Pay by Bank solution providers that align with national payment frameworks are well-positioned to comply with local regulations while delivering a reliable and consistent service. This approach not only streamlines payment processing but also ensures regulatory compliance.

Regulatory and compliance framework

Pay by bank app services operate within a comprehensive regulatory framework, adhering to PSD2 and the forthcoming PSD3 requirements. These regulations ensure that payment providers implement robust security measures while delivering innovative, customer-centric services. Oversight by the Financial Conduct Authority (FCA) adds an additional layer of protection for both merchants and consumers, as regulated providers must meet stringent operational and security standards.

The compliance framework is underpinned by Strong Customer Authentication (SCA), supported by regular security audits and stringent data protection standards in line with GDPR requirements. Payment providers are required to maintain accurate reporting and transparent communication with customers, ensuring that every transaction is properly tracked and documented. This robust regulatory environment builds trust in Pay by bank app services, offering clear guidance for service providers and merchants adopting these payment systems.

Pay by bank app vs. Account-to-Account (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 app 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 app: 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 app: Pay by Bank payments 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 app: The ease of integration via APIs and their compatibility with existing financial systems makes this solutions an ideal choice for modern online businesses.

Pay by bank app vs. Traditional bank payments

Traditional bank payments have long been the cornerstone of online banking in the UK. From routine bill payments to high-value corporate transfers, they have reliably supported the country’s financial system, evolving gradually over time to meet regulatory and technological changes.

Given that these conventional bank transfer methods already offered secure and dependable platforms for transactions, it raises the question: why was there a need to introduce modern innovations like the Pay by bank app in the online payments landscape?

To answer this, it’s important first to examine how traditional bank payment mechanisms operate.

1. BACS (bankers’ automated clearing services): BACS, established in the 1960s, remains a fundamental part 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. The system is a reliable option in terms of both 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 transactions.
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 solution providers

1. Wonderful

Wonderful, a leading UK Pay by bank app provider, enables businesses to accept payments directly from customer bank accounts seamlessly and cost-effectively. The platform facilitates real-time transactions over a secure network and integrates smoothly with various e-commerce systems, including WooCommerce payment gateways. As a trusted name among UK businesses and consumers, Wonderful leverages the benefits of Pay by Bank technology and the broader open banking framework to deliver a modern, efficient payment experience.

2. Trustly

Trustly enables consumers to make payments directly from their bank accounts without the need for a card or a separate Pay by bank app. Widely adopted by online retailers and consumers alike, it is valued for its rapid transaction speeds and robust security features, making it a reliable pan-European Pay by Bank solution provider in the growing open banking ecosystem.

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 advantages of open banking is the introduction of standardised APIs, which require the UK’s largest banks to provide access to regulated fintechs (such as Wonderful) for connecting to and initiating payments—with the explicit consent of the customer. These APIs enable regulated financial service providers to securely access and interact with bank account information, allowing them to offer a wide range of services, including payments, budgeting, 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 can 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 enable services such as account information aggregation and payment initiation, which 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 open banking APIs are secure, reliable, and easy 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 Pay by Bank adoption in Europe. Regulatory initiatives such as the Second Payment Services Directive (PSD2) have been instrumental in driving this trend by mandating 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. Around 17% of small businesses 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 payment solutions.

Technological advancements, regulatory backing, and increasing consumer adoption all signal a promising future for Pay by Bank payment apps. Key drivers include enhanced security and efficiency, robust support from regulatory bodies such as the Financial Conduct Authority (FCA), and the expansion of use cases beyond retail into sectors like insurance and utilities. Moreover, the global momentum behind open banking—particularly in regions such as North America and Asia—is expected to accelerate the widespread adoption of Pay by Bank solutions, reshaping the way online transactions are carried out.

FAQ

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 significantly reducing transaction fees—sometimes as low as 1p per transaction—and minimising the risk of fraud and chargebacks, it delivers substantial cost savings for both businesses and customers.

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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