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Open banking is a UK government-backed framework that lets businesses securely access customer bank account information and initiate payments directly from a customer's account, with their explicit consent, using regulated third-party providers rather than card networks. For UK businesses, it means faster settlement, lower transaction fees than card processing, and new tools for verifying customer affordability. Since its launch in 2018, open banking has grown from a niche fintech feature into a mainstream payment and data-sharing infrastructure used by millions of UK consumers and thousands of businesses every month.
Key Takeaways
- Open banking is regulated by the FCA and built on the second Payment Services Directive (PSD2), overseen in the UK by the Open Banking Implementation Entity (OBIE) and its successor bodies.
- Open banking payments typically cost businesses between 0.1% and 1% per transaction, compared with 1.5% to 3.5%+ for card payments.
- Money moves directly between bank accounts via Faster Payments, meaning no card networks, no chargebacks, and settlement often within seconds.
- Over 11 million UK consumers and businesses now use open banking-enabled services, according to Open Banking Limited figures.
- Open banking is not a single product - it covers account information services (AIS) and payment initiation services (PIS), which serve different business needs.
- Adoption is growing fastest in e-commerce checkout, bill payments, subscriptions, and affordability checks for lending and BNPL providers.
- It works alongside, not instead of, existing payment methods - most UK businesses run it in parallel with card acceptance and direct debit.
What Open Banking Actually Means
Open banking refers to the secure sharing of financial data and the initiation of payments between banks and authorised third parties, using standardised APIs (application programming interfaces). It was introduced in the UK following an order from the Competition and Markets Authority (CMA) in 2017, which required the nine largest UK banks - known as the "CMA9" - to open up their systems to regulated providers. This was reinforced by PSD2, an EU directive retained in UK law after Brexit.
In practice, open banking allows a business to ask a customer to pay directly from their bank account, or to verify a customer's income and spending, without ever touching card details, sort codes, or account numbers manually. The customer authorises the request through their own banking app, using the same login and security they already trust.
The Two Core Services
Open banking splits into two distinct regulated activities, and understanding the difference matters when choosing a provider.
- Account Information Services (AIS): Read-only access to a customer's transaction history and balances, used for affordability checks, accounting software feeds, and financial dashboards.
- Payment Initiation Services (PIS): The ability to trigger a payment directly from a customer's bank account to a business's account, used at checkout, for invoicing, or for one-off bill payments.
How Open Banking Payments Work in Practice
For a UK business accepting an open banking payment, the process is more straightforward than most card flows. The customer selects "pay by bank" at checkout, chooses their bank from a list, is redirected (or shown a QR code or link) to their banking app, confirms the payment amount and recipient, and authorises it using their existing biometric or PIN security. The payment then moves via Faster Payments, typically settling within seconds and rarely more than a few hours.
This differs fundamentally from card payments, which rely on card schemes such as Visa and Mastercard, involve an issuing bank, acquiring bank, and payment processor, and can take one to three working days to settle into a merchant account. Open banking removes several of these intermediaries, which is the primary reason it is cheaper.
Where UK Businesses Are Using It Today
Common current use cases include e-commerce checkouts as an alternative to card payment, one-off invoice payments for services businesses and freelancers, utility and subscription bill payments, top-ups for digital wallets and prepaid accounts, and affordability and income verification for lenders and BNPL providers. Retailers and marketplaces are increasingly offering it as a "pay by bank" button alongside card options - see our guide to marketplace payment solutions for how platform businesses are integrating it.
Open Banking vs Card Payments: A Direct Comparison
The most common question UK businesses ask is simply: how does this compare to what I'm already paying through my card machine or payment gateway? The table below sets out the practical differences.
| Feature | Open Banking Payments | Card Payments |
|---|---|---|
| Typical transaction cost | 0.1% - 1% per transaction | 1.5% - 3.5%+ per transaction |
| Settlement speed | Seconds to a few hours (Faster Payments) | 1-3 working days typically |
| Chargeback risk | None (no chargeback mechanism exists) | Present - disputes can be raised by cardholders |
| Customer familiarity | Growing but still lower than cards | Very high - default payment method for most |
| Refund process | Manual bank transfer required by merchant | Automated refund via card network |
| Recurring payments support | Improving, via variable recurring payments (VRPs) | Well established via continuous authority/direct debit |
| Regulatory framework | FCA-regulated under PSD2/PSRs | FCA and card scheme rules |
For a deeper look at how open banking stacks up specifically against recurring payment methods, see our comparison of direct debit vs open banking.
The Real Cost Savings for UK Businesses
Cost is the headline reason many UK businesses are exploring open banking. A typical UK retailer processing card payments might pay an effective rate of around 1.5% to 2.5% once interchange fees, scheme fees, and processor margin are combined, with online "card not present" transactions often at the higher end due to increased fraud risk pricing. Open banking providers, by contrast, frequently charge a flat fee per transaction (often 20p-30p) or a low percentage rate below 1%, because they avoid card scheme fees entirely.
For a business processing £50,000 a month in card sales at an average 2% effective rate, that's £1,000 in monthly processing costs. Shifting even a third of that volume to open banking at a typical 0.5% rate could reduce costs on that portion from roughly £333 to under £85 - a saving that scales meaningfully across a full year. These figures vary by provider and sector, so it's worth comparing quotes directly relevant to your transaction volumes and average basket size.
Where the Savings Are Most Significant
Savings tend to be largest for businesses with high average transaction values, since card fees often scale with transaction size while open banking fees are frequently flat or capped. This makes open banking particularly attractive for professional services invoicing, property and rent payments, B2B transactions, and high-ticket retail purchases such as furniture or holidays, where a 1.5% card fee on a £2,000 transaction (£30) contrasts sharply with a flat 30p open banking fee.
Setting Up Open Banking for Your Business
UK businesses cannot connect directly to bank APIs themselves in most cases - you need to work with an FCA-authorised payment initiation provider. Well-known UK providers in this space include TrueLayer, Yapily, GoCardless (via its Instant Bank Pay product), Volt, and Token.io, alongside newer entrants integrating open banking into broader payment platforms. Many payment gateways and e-commerce platforms now offer open banking as a plug-in option alongside existing card acceptance.
Practical Steps to Get Started
- Identify where in your payment journey open banking adds the most value - checkout, invoicing, or subscription billing.
- Request quotes from two or three FCA-regulated open banking providers, comparing per-transaction fees, settlement times, and integration support.
- Check integration compatibility with your existing website, e-commerce platform, or accounting software.
- Run a pilot alongside your existing card acceptance rather than replacing it outright, to measure customer uptake.
- Review conversion rates after 60-90 days, since customer familiarity with "pay by bank" varies significantly by demographic and sector.
If you're weighing open banking against other lower-cost payment methods such as payment links sent by email or SMS, our pay by link guide covers a complementary approach that many UK businesses run alongside open banking.
Limitations and Risks to Understand
Open banking is not a like-for-like replacement for cards, and UK businesses should go in with realistic expectations. Customer awareness remains a genuine barrier - while adoption is rising quickly, many UK consumers still default to a card or digital wallet like Apple Pay or Google Pay at checkout simply because it's familiar. See our guide to digital wallets in the UK for how these compare as alternative low-friction options.
Refunds also require manual handling in most current implementations, since there's no automated reversal mechanism equivalent to a card chargeback - this places more administrative burden on the merchant and means refund policies need to be clearly communicated to customers. Additionally, recurring and subscription payments via open banking are improving through Variable Recurring Payments (VRPs), but this technology is still maturing compared with the decades-old direct debit system, and coverage across all UK banks is not yet universal.
Regulatory and Security Considerations
Because open banking involves customer financial data, businesses must ensure their chosen provider is properly authorised by the FCA as either an Account Information Service Provider (AISP) or Payment Initiation Service Provider (PISP) - or both. You can check a provider's authorisation status on the FCA's Financial Services Register. Using an unregulated intermediary would expose both your business and your customers to unnecessary risk, so this is a non-negotiable due diligence step before signing any contract.
Open Banking and Buy Now Pay Later
Open banking also plays an important supporting role in the UK's growing Buy Now Pay Later sector, where lenders use account information services to assess a customer's real-time income and spending patterns before extending credit. This is increasingly replacing or supplementing traditional credit checks, giving a more accurate affordability picture. If your business offers BNPL options, understanding how open banking underpins these products is useful context - see our guide to Buy Now Pay Later for UK merchants for the commercial detail.
Is Open Banking Right for Your Business Right Now?
The honest answer depends on your sector, average transaction value, and customer base. Businesses with high-value transactions, B2B invoicing, or a younger, digitally engaged customer base tend to see the fastest returns from adding open banking as a payment option. Businesses with low average transaction values, older customer demographics, or heavy reliance on in-person card payments may see more modest short-term benefit, though the direction of travel across UK payments is clearly toward greater open banking adoption as awareness grows and more banks support VRPs.
Most UK businesses that adopt open banking do so as an addition to their existing online payment systems rather than a wholesale replacement, giving customers choice while capturing cost savings on the transactions that do move across.
Frequently Asked Questions
Is open banking safe for UK businesses to use?
Yes, provided you work with an FCA-authorised provider. Open banking is built on strict regulatory standards under PSD2 and UK payment services regulations, and customer authorisation always happens within their own trusted banking app rather than on a third-party site, which reduces fraud risk compared with entering card details manually.
How much does open banking cost compared to card payments?
Open banking typically costs between 0.1% and 1% per transaction, or a flat fee often in the 20p-30p range, compared with 1.5% to 3.5%+ for card payments once all fees are included. The exact saving depends on your provider, transaction volumes, and average basket size, so getting a direct quote is the best way to see your own numbers.
Can customers get chargebacks on open banking payments?
No, there is no chargeback mechanism for open banking payments because they move directly between bank accounts via Faster Payments rather than through a card scheme. This removes chargeback risk for merchants but also means refunds must be processed manually, so clear refund policies are essential.
Does open banking work for recurring payments and subscriptions?
Open banking increasingly supports recurring payments through Variable Recurring Payments (VRPs), but coverage is not yet as universal as traditional direct debit across all UK banks. Many subscription businesses currently use open banking for the initial payment and direct debit for ongoing billing, though this is expected to shift as VRP adoption grows.
Which UK banks support open banking?
All nine of the CMA9 banks - Barclays, Lloyds, HSBC, NatWest, Santander, Nationwide, Bank of Ireland, Danske Bank, and AIB Group (UK) - are required to support open banking, and most other UK banks and building societies have also adopted the standards voluntarily. Coverage now extends to the vast majority of UK current account holders.
Do I need special software to accept open banking payments?
You need to integrate with an FCA-regulated payment initiation provider such as TrueLayer, Yapily, or GoCardless, either directly via their API or through a payment gateway or e-commerce platform that already supports open banking. Most providers offer plug-ins for popular platforms, making integration straightforward for businesses already using standard online payment systems.
Will open banking eventually replace card payments in the UK?
It's unlikely to fully replace cards in the near term, but it is steadily becoming a mainstream alternative, particularly for higher-value transactions and B2B payments where the cost savings are most significant. Most industry commentators expect open banking to grow as a complementary payment method alongside cards and digital wallets rather than displacing them entirely.
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