What is Pay by Bank and how does it work?

Pay by Bank is a fast-growing online payment method that takes place entirely without the need for card networks. With more and more consumers using Pay by Bank — over 30 million payments take place each month in the UK alone — you need to know what benefits it offers to businesses and why it could be time to add it to your own checkout.

In summary

• Pay by Bank is a payment method that lets customers pay for things directly from their bank account via their bank app, without the need for card networks.

Pay by Bank is a payment method that lets customers pay for things directly from their bank account via their bank app, without the need for card networks.

• Pay by Bank has four characteristics which makes it inherently safe: every payment uses strong customer authenticationno sensitive details are sharedpayment instructions are pre-populatedPay by Bank providers onboard and carry out due diligence with merchants

Pay by Bank has four characteristics which makes it inherently safe:

• every payment uses strong customer authentication

every payment uses strong customer authentication

• no sensitive details are shared

no sensitive details are shared

• payment instructions are pre-populated

payment instructions are pre-populated

• Pay by Bank providers onboard and carry out due diligence with merchants

Pay by Bank providers onboard and carry out due diligence with merchants

• 65% of UK shoppers would be comfortable trying Pay by Bank if offered it at checkout. Shoppers between the ages of 18 and 44 are most comfortable, with 74% willing to try Pay by Bank at checkout.

65% of UK shoppers would be comfortable trying Pay by Bank if offered it at checkout. Shoppers between the ages of 18 and 44 are most comfortable, with 74% willing to try Pay by Bank at checkout.

What is Pay by Bank?

In short, Pay by Bank is a payment method that lets customers pay for things directly from their bank account via their bank app. To do this, customers can go to the checkout when paying for something online, and select ‘Pay by Bank’ where it’s available, rather than choosing to pay by card or other payment methods.

While the name Pay by Bank has become the standard term for this type of payment method, you may also see it referred to as an open banking payment — as it’s powered by open banking technology — or account to account payment, because the money moves from the payer’s bank to the recipient’s (typically a business) account without the need for card networks and other intermediaries. Sometimes, at checkout, it’s called instant bank payment, instant bank transfer or bank pay.

What about recurring payments?

While Pay by Bank is typically used for one-time payments, recurring payment use cases are evolving. The recurring payment version of Pay by Bank is called Bank on file, and it’s built on top of a technology called variable recurring payments (VRP). With benefits like instant settlement, confirmation of funds and greater visibility for merchants and consumers, it has several advantages over the likes of direct debit and card on file.

Currently, Bank on file can be used for ‘sweeping payments’, which are payments between two accounts belonging to the same person. That means Bank on file is already useful for things like loan repayments, credit card repayments and smart savings. Plans are in place to allow Bank on file to be used for things like subscription payments, travel, utility bills and one-click checkout, which will greatly increase its usage and adoption.

How does Pay by Bank work?

Pay by Bank is underpinned by open banking technology, meaning the entire journey is free from card payment rails (the underlying infrastructure facilitating card payments), which also makes the experience quicker and easier for online shoppers. A typical Pay by Bank journey looks like this:

• At checkout, the shopper simply selects Pay by Bank from the options available

At checkout, the shopper simply selects Pay by Bank from the options available

• The shopper will then choose their bank from a list of available banks

The shopper will then choose their bank from a list of available banks

• They are then automatically redirected to their bank app, where they use biometric authentication to confirm the payment, with all the details pre-populated

They are then automatically redirected to their bank app, where they use biometric authentication to confirm the payment, with all the details pre-populated

• They are finally redirected back to the merchant’s website or app where the payment is confirmed

They are finally redirected back to the merchant’s website or app where the payment is confirmed

The whole process takes as little as 30 seconds. If the shopper is a returning customer, or even someone who has paid with Pay by Bank before, the journey can be even easier, with the shopper’s preferred bank app being pre-selected or highlighted.

Is Pay by Bank safe?

In short, yes, Pay by bank is safe and secure for both merchants and consumers. In fact, it’s typically more secure than other common online payment methods. Pay by Bank payments have four characteristics that make them inherently safe:

• Every payment uses strong customer authentication (SCA): When a customer makes a payment using Pay by Bank, they are always sent to their bank’s app to authenticate the payment, typically with biometrics. This means their bank checks that they are who they say they are by confirming a combination of attributes only the legitimate customer could have/know.

Every payment uses strong customer authentication (SCA): When a customer makes a payment using Pay by Bank, they are always sent to their bank’s app to authenticate the payment, typically with biometrics. This means their bank checks that they are who they say they are by confirming a combination of attributes only the legitimate customer could have/know.

• No sensitive details are shared: Unlike with card payments, no sensitive details are shared with the merchant when using Pay by Bank — there is nothing to intercept, steal or leak that could lead to unauthorised payments. Instead, Pay by Bank providers securely communicate with the customer’s bank to pass on payment instructions in the background and initiate the payment.

No sensitive details are shared: Unlike with card payments, no sensitive details are shared with the merchant when using Pay by Bank — there is nothing to intercept, steal or leak that could lead to unauthorised payments. Instead, Pay by Bank providers securely communicate with the customer’s bank to pass on payment instructions in the background and initiate the payment.

• Payment instructions are pre-populated: When a customer chooses to pay with Pay by Bank, they don’t need to enter any long card or account numbers. Instead the provider pre-populates the details, removing human error and minimising the risk of customers being tricked into sending the money to a fraudster, through authorised push payment (APP) fraud and similar scams.

Payment instructions are pre-populated: When a customer chooses to pay with Pay by Bank, they don’t need to enter any long card or account numbers. Instead the provider pre-populates the details, removing human error and minimising the risk of customers being tricked into sending the money to a fraudster, through authorised push payment (APP) fraud and similar scams.

• Pay by Bank providers onboard and carry out due diligence with merchants: When a Pay by Bank provider enables payments for a merchant or other business, they enter into a commercial contract with that business and undertake due diligence on the business as part of that. This reduces the likelihood that bad actor merchants would use open banking to commit fraud.

Pay by Bank providers onboard and carry out due diligence with merchants: When a Pay by Bank provider enables payments for a merchant or other business, they enter into a commercial contract with that business and undertake due diligence on the business as part of that. This reduces the likelihood that bad actor merchants would use open banking to commit fraud.

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What are the benefits of Pay by Bank?

For merchants there are several reasons that Pay by Bank is more effective than other more established payment methods — like card payments — if you offer it to customers at checkout:

• Lower operational costs and fees: With fewer intermediaries than card payments, there are fewer middle-men to take their cut from each payment. Plus, other costs associated with managing payments, from chargeback to fraud are minimised

Lower operational costs and fees: With fewer intermediaries than card payments, there are fewer middle-men to take their cut from each payment. Plus, other costs associated with managing payments, from chargeback to fraud are minimised

• Boost sales and conversion: As shoppers simply pay directly from their bank account, a lot of the friction — like inputting lengthy card details, or manually navigating away from the checkout to complete a payment — is removed, resulting in a better payment experience from start to finish. Businesses using Pay by Bank with TrueLayer see conversion rates as high as 90%.

Boost sales and conversion: As shoppers simply pay directly from their bank account, a lot of the friction — like inputting lengthy card details, or manually navigating away from the checkout to complete a payment — is removed, resulting in a better payment experience from start to finish. Businesses using Pay by Bank with TrueLayer see conversion rates as high as 90%.

• Minimise fraud: As mentioned above, Pay by Bank payments are secure, with biometric authentication that keeps sensitive data private and every transaction safer, eliminating or minimising the likes of chargeback fraud, card-not-present fraud and APP fraud.

Minimise fraud: As mentioned above, Pay by Bank payments are secure, with biometric authentication that keeps sensitive data private and every transaction safer, eliminating or minimising the likes of chargeback fraud, card-not-present fraud and APP fraud.

• Reduce reliance on a single payment method: Pay by Bank can be added to your checkout as part of a best-in-class selection of payment methods. Not only does this cater to shoppers’ payment preferences, it also reduces your reliance on a single payment method. With events like the Crowdstrike outage temporarily taking card payments offline, having a more diverse and resilient checkout is important.

Reduce reliance on a single payment method: Pay by Bank can be added to your checkout as part of a best-in-class selection of payment methods. Not only does this cater to shoppers’ payment preferences, it also reduces your reliance on a single payment method. With events like the Crowdstrike outage temporarily taking card payments offline, having a more diverse and resilient checkout is important.

• Offer instant refunds: Refunds are a major concern for shoppers. 84% are happy to wait a week, at most, to receive their refund, while a similar number (80%) say refund times affect their decision to shop with a brand again. Pay by Bank providers can process refunds that settle instantly, boosting retention and customer loyalty.

Offer instant refunds: Refunds are a major concern for shoppers. 84% are happy to wait a week, at most, to receive their refund, while a similar number (80%) say refund times affect their decision to shop with a brand again. Pay by Bank providers can process refunds that settle instantly, boosting retention and customer loyalty.

Are shoppers already using Pay by Bank?

Any payment method needs the consumer to trust and choose it where it’s offered. Pay by Bank is already an established payment method in certain industries, including iGaming and financial services, and is a growing payment method in ecommerce.

Every month, are made successfully in the UK. The growth of Pay by Bank is consistent, up from 13.5 million in December 2023, and 7.6 million in December 2022.

While equivalent data isn’t as readily available in Europe, Pay by Bank is a growing proposition across the continent, made even more attractive with the Instant Payment Regulations coming into effect in 2025. TrueLayer, for example, has at least 95% coverage — by which we mean the proportion of adults with bank accounts we could potentially reach with Pay by Bank — in France, Germany, Ireland, Netherlands, Belgium, Finland and more.

While 23% of shoppers say they have already tried Pay by Bank, 65% of UK shoppers would be comfortable to try Pay by Bank if offered it at checkout. Shoppers between the ages of 18 and 44 are most comfortable, with 74% willing to try Pay by Bank at checkout.

Pay by Bank with TrueLayer

TrueLayer is a leader in Pay by Bank and open banking, partnering with the likes of JustEat Takeaway, Ryanair, William Hill, lastminute.com, Topps Tiles, Flutter and many more.

We process over 40% of the UK’s Pay by Bank payments, making us the largest Pay by Bank network in the UK. The TrueLayer network — our growing universe of primed Pay by Bank users — has surpassed 17 million, with a new user joining every three seconds.

Get in touch with one of our payment experts to see how Pay by Bank could boost your sales, reduce costs and help you build a resilient best-in-class checkout.