What actually happens between clicking “Pay by Bank” and a business getting paid?
Kieron James
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What happens after a customer clicks “Pay by Bank”? This step-by-step guide explains how Open Banking payments move from authorisation to settlement, and how businesses receive confirmation and funds.
Table of contents
Introduction
For many customers, Pay by Bank feels deceptively simple.
They click a button, select their bank, approve the payment in their banking app, and within moments the business receives confirmation that the transaction has been completed.
Behind that simplicity sits a sophisticated process involving bank authentication, Open Banking APIs, payment initiation, fraud controls and real-time account-to-account payment infrastructure.
Most explanations of Pay by Bank stop at the checkout experience itself. Far fewer explain what actually happens between the moment a customer clicks “Pay by Bank” and the moment the business receives the money.
Understanding that flow helps businesses make better decisions about payment methods, settlement expectations, operational processes and customer support.
Step 1: The customer chooses Pay by Bank
The process begins when a customer selects Pay by Bank at checkout, from a payment link, or via a QR code.
At this point, the payment provider creates a payment initiation request containing:
- the payment amount;
- the recipient account details;
- reference information;
- and metadata required for the transaction.
Unlike card payments, the customer is not entering card numbers or expiry dates. The transaction is being prepared as a direct bank-to-bank payment from the outset.
Step 2: The customer selects their bank
The customer is then asked to choose their bank from a list of participating providers.
This step is important because the payment journey now transitions from the merchant environment into the customer’s banking environment using Open Banking APIs established under PSD2 and the UK Open Banking framework¹.
The customer is either:
- redirected to their banking app or online banking platform;
- or shown a secure embedded authorisation flow.
From the customer’s perspective, this often feels similar to logging into online banking normally, which is one reason trust levels are generally high once users become familiar with the process.
Step 3: Bank authentication takes place
The bank now authenticates the customer directly.
This authentication process usually involves:
- biometric verification such as Face ID or fingerprint authentication;
- passcodes or secure banking credentials;
- Strong Customer Authentication requirements under UK regulation².
At this stage, the bank verifies:
- the customer’s identity;
- that the account is active;
- and that the customer has authority to approve the payment.
The payment provider itself never sees the customer’s banking password or biometric data.
That distinction is important because it changes the security model significantly compared with traditional card payments.
Step 4: The payment is authorised
Once authentication succeeds, the customer is shown the payment details for approval.
These typically include:
- the payment amount;
- the merchant or recipient name;
- and the payment reference.
The customer explicitly authorises the transaction through their bank.
The bank then performs a series of internal checks before releasing the payment request into the Faster Payments system. These checks may include:
- available balance verification;
- fraud monitoring;
- behavioural analysis;
- transaction risk controls.
If approved, the bank initiates the payment directly from the customer’s account.
Step 5: Funds move through the Faster Payments network
In the UK, most Pay by Bank transactions ultimately travel via the Faster Payments system³.
This differs fundamentally from card processing.
With cards, authorisation and settlement are separate processes involving card schemes, acquirers and issuing banks. Pay by Bank transactions are account-to-account payments from the beginning, which removes several intermediary layers.
Once the payment enters Faster Payments:
- the sending bank transmits the funds;
- the receiving bank accepts the transaction;
- confirmation messages are exchanged between participants.
In the vast majority of cases, this completes within seconds.
Step 6: The business receives payment confirmation
One of the most important operational differences between Pay by Bank and traditional bank transfers is confirmation.
Historically, manual bank transfers created uncertainty for businesses because customers could claim payment had been sent before funds actually arrived.
Pay by Bank changes this by providing structured payment confirmation through the payment provider.
The business typically receives:
- confirmation that the customer authorised the payment;
- confirmation that the payment was successfully initiated;
- confirmation once settlement acknowledgement is received.
This creates a much cleaner operational flow for fulfilment, invoicing and reconciliation.
Step 7: Settlement and reconciliation happen together
Card payments often involve delayed settlement cycles. A transaction may be authorised immediately but settle days later through batch-based acquiring processes.
Pay by Bank behaves differently because the transaction itself is already a bank transfer.
This means businesses often receive:
- faster access to funds;
- improved cash flow visibility;
- simpler reconciliation between payments and bank statements.
For small businesses, this operational simplicity can become as important as the fee savings themselves.
What can cause a Pay by Bank payment to fail?
No payment system succeeds 100% of the time, and understanding failure scenarios is important operationally.
Common causes include:
- insufficient customer funds;
- abandoned authentication journeys;
- banking app timeout issues;
- customer cancellation during approval;
- temporary bank availability problems.
Most failures occur before funds move, which means the customer usually remains fully in control of the process throughout.
This is another important difference from card systems, where disputes and reversals may occur after authorisation and settlement.
Why businesses are increasingly interested in the process itself
As Open Banking adoption grows across the UK, businesses are becoming more interested in understanding the infrastructure behind Pay by Bank rather than simply viewing it as another checkout button.
The UK ecosystem now supports around 17 million Open Banking users or user connections and processes more than 33 million payments each month⁴.
That scale changes the conversation. Businesses increasingly want to understand:
- how payments move;
- how confirmation works;
- how settlement differs from cards;
- and where operational advantages emerge.
Those questions become especially relevant as account-to-account payments move further into everyday commerce.
Operational perspective
“One of the reasons businesses become more confident with Pay by Bank over time is that the process is surprisingly transparent once you understand it. The payment moves directly between bank accounts, the customer authenticates with their own bank, and confirmation arrives very quickly. Operationally, it is a very different model from traditional card processing.” — Carmen James, Head of Operations and Co-Founder, Wonderful
Conclusion
The simplicity of Pay by Bank from a customer perspective can hide the sophistication underneath it.
What appears to be a straightforward payment journey actually combines secure bank authentication, regulated Open Banking infrastructure, real-time account-to-account payments and structured confirmation systems designed to reduce friction for both customers and businesses.
For small businesses, understanding that process helps explain why Pay by Bank behaves differently from cards, why settlement is often faster, and why the operational experience increasingly appeals to businesses collecting higher-value or remote payments.
As adoption continues to grow across the UK, familiarity with the mechanics behind Pay by Bank is likely to become increasingly important for businesses evaluating modern payment options.
Frequently asked questions
Does Pay by Bank use card networks?
No.
Pay by Bank transactions move directly between bank accounts using Open Banking APIs and payment rails such as Faster Payments, rather than Visa or Mastercard card networks.
How quickly do businesses receive funds?
Many Pay by Bank transactions settle within seconds, although exact timing depends on the participating banks and payment provider.
Is Pay by Bank secure?
Pay by Bank relies on bank-level authentication and Strong Customer Authentication requirements under UK regulation. Customers authorise payments directly within their banking environment.
Can a Pay by Bank payment fail?
Yes.
Common causes include insufficient funds, abandoned customer journeys, authentication timeout issues and temporary bank availability problems.
