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Pay by bank: a practical guide to open banking payments

How open banking payments work, where they beat cards, and the UX details that make or break conversion.

Open bankingAPMsAPM guide

Open banking payments, often called “pay by bank”, move money directly from the customer’s bank account to yours. There is no card number, no card scheme fee and no chargeback process. Done well, they are fast, cheap and secure. Done badly, customers abandon at the bank selection screen.

How it works

  1. The customer chooses “pay by bank” and picks their bank.
  2. They are sent to their banking app (or online banking) with the amount and payee already filled in.
  3. They approve the payment with their usual bank login, which counts as strong customer authentication.
  4. The bank sends the payment over the local instant payment rail, and you get a confirmation.

In Europe this runs on the payment initiation rules introduced by PSD2. Similar models exist under other names around the world.

Where it beats cards

  • High-value payments, where card limits and issuer risk checks cause declines.
  • Account funding for trading, gaming and wallets, where knowing the source account helps compliance.
  • Lower cost, since there are no interchange or scheme fees.
  • Instant settlement on rails that support it.

What to watch for

  • No chargebacks. Customers can’t dispute through a card scheme, so you need a clear, fast refund process of your own.
  • Bank coverage varies. Check that the banks your customers use are supported in each market.
  • Pending states. Some payments take a moment to confirm. Design for “pending” instead of showing an error.

UX details that lift conversion

  1. Show bank logos, with the most popular banks first for the customer’s country, plus search.
  2. Remember the customer’s bank for repeat payments.
  3. Deep-link into the banking app on mobile instead of a web login.
  4. Explain the step briefly: “You’ll approve this in your banking app.”
  5. Fall back gracefully. If the bank is unavailable, offer cards or another method on the same page.

Recurring payments

Variable recurring payments (VRP) let a customer set up a mandate once and allow future payments within agreed limits. They are live for some use cases and expanding to more.

Learn more about Tuskpay Open Banking or talk to our team.