Open Banking Payments for Business: A Practical Guide

What open banking payments actually are

An open banking payment is a bank-to-bank transfer that your customer authorises through a regulated third party. That third party is a Payment Initiation Service Provider, or PISP. The Financial Conduct Authority defines a payment initiation service as an online service that initiates a payment order at the request of a payment service user from a payment account held at another payment service provider. In plain terms, the PISP asks the customer's bank to make a payment, with the customer's explicit consent.

The flow is familiar to anyone who has used a mobile banking app. The customer chooses to pay by bank at checkout, selects their bank, and is taken into their banking app to approve the payment using their usual security, such as Face ID or a passcode. The bank then sends the payment. No card number is entered and no card details are stored by the merchant.

It is worth separating two related open banking roles. Payment initiation moves money. Account information services, delivered by Account Information Service Providers, only read account data with consent, for example to confirm a balance or verify income. This article is about the payment side, but both sit under the same open banking framework.

How it differs from card payments

With a card payment, the transaction runs across a card scheme such as Visa or Mastercard, through an acquirer, and settlement typically arrives one to a few days later. Interchange, scheme fees and acquirer margin all sit on top. Card payments can also be reversed through the chargeback process, which shifts risk and cost onto the merchant.

An open banking payment is a direct credit transfer initiated from the payer's account. Because it is a push payment authorised by the account holder in their own banking app, there is no chargeback mechanism of the card kind. Funds move over Faster Payments, so the money usually arrives within seconds rather than days. The trade-off is that reversals and disputes are handled differently, so businesses that rely on card-style dispute rights should design their refund and customer-service processes accordingly.

The two methods are not mutually exclusive. Most businesses offer open banking payments alongside cards and let customers choose. High-value, one-off or account-funding payments often suit bank transfer, while cards remain convenient for smaller impulse purchases.

The Faster Payments rail underneath

Open banking payments in the UK are carried by Faster Payments, the national scheme for near-instant bank-to-bank transfers. Open Banking Limited describes the process as the customer's bank sending the payment instantly via Faster Payments, after which the customer returns to the merchant with confirmation. This is why open banking payments settle so quickly compared with cards.

The scale is significant. Open Banking Limited reported that 31 million open banking payments were made in March 2025, equivalent to 7.9% of all Faster Payments, or roughly one in every 13. That share has grown as more businesses and banks support payment initiation.

Because it uses an existing, well-established national rail rather than a card network, open banking payment initiation does not introduce a new settlement system. The innovation is the regulated, consented way of instructing that payment through a bank's open API.

Adoption is accelerating

The numbers from Open Banking Limited show steady, compounding growth. The ecosystem passed 10 million users, announced in July 2024, and reached 13.3 million active users by March 2025, described as 40% year-on-year growth. User connections rose from 12.1 million in December 2024 to 16.5 million by December 2025.

Payments have grown even faster than users. Open Banking Limited reported around 351 million open banking payments across 2025, a 57% increase on the prior year, with single domestic payments up 52% and sweeping variable recurring payments up 98%. Impact Report 7 recorded 70% year-on-year growth in payments as at March 2025.

Adoption is also broadening. Open Banking Limited states that roughly one in five UK consumers and small businesses now use open banking, up from one in 17 in March 2021, supported by 145 live third-party providers with market-ready propositions.

Variable recurring payments for regular billing

Variable recurring payments, or VRPs, extend open banking beyond one-off transactions. Open Banking Limited explains that a VRP lets a customer grant a long-lived consent to a PISP to instruct a series of payments on their behalf, within agreed limits, without having to authenticate every single payment at their bank. The customer authorises the initial consent using strong customer authentication, then payments within the agreed parameters can run automatically.

This makes VRPs a natural fit for subscriptions, account top-ups and other regular collections, giving customers a clear view of who they have authorised and the limits that apply. VRPs are already a meaningful slice of activity. Impact Report 7 noted VRPs accounted for 13% of open banking payments as at March 2025, and sweeping VRP volumes nearly doubled across 2025, up 98% year on year.

For businesses, VRPs offer an alternative to card-on-file recurring billing and Direct Debit, with faster settlement and granular, customer-visible limits. The commercial rollout beyond initial sweeping use cases is an area to watch as the framework matures.

Why merchants use open banking payments

The commercial case rests on cost, fraud and conversion. Open Banking Limited lists lower payment processing costs, reduced fraud and chargebacks, higher conversion through a simpler checkout, and no card expiries or failures among the benefits for merchants. Because there are no card details to store, the scope of card-data security obligations is reduced as well.

On fraud, Open Banking Limited reported an open banking payment fraud rate of 0.013% between March 2024 and September 2025, against a 0.045% industry average for bank transfers. Combined with instant settlement over Faster Payments, this can improve both cash flow and risk for businesses collecting larger or recurring amounts.

None of this removes the need for good operational design. Because open banking payments do not carry card chargeback rights, merchants should set clear refund policies, reconcile instant settlements promptly, and decide where bank payments and cards each make most sense in the customer journey. See how Nasara Connect supports payment operations for teams offering multiple payment methods.

The regulatory basis: PSD2 and the FCA

Open banking payments exist because of the second Payment Services Directive, implemented in the UK by the Payment Services Regulations 2017. Under this framework, banks that offer online payment accounts must give regulated third parties access to those accounts, with the customer's explicit consent and authentication. This is what allows a PISP to initiate a payment from an account held at another provider, known as an Account Servicing Payment Service Provider.

The FCA regulates the firms involved. A business providing payment initiation services must be authorised by the FCA, not merely registered. Authorised payment initiation providers must hold a minimum of 50,000 euros in initial capital and professional indemnity insurance, and must implement strong customer authentication and secure communication standards. Account information providers can be authorised or registered and face somewhat lighter conditions.

For most merchants, the practical point is that you do not need to become authorised yourself. You connect through an FCA-authorised PISP, which carries the regulatory permissions, while you focus on the checkout and reconciliation. It is still sensible to confirm your provider's FCA status and understand where liability sits. If you are weighing up providers, talk to our team about how open banking fits your payment mix.

Conclusion

Open banking payments have moved from novelty to a credible mainstream option for UK businesses. They settle in seconds over Faster Payments, avoid card-scheme chargebacks, cut processing costs and store no card data, and the adoption figures from Open Banking Limited show a market growing quickly on both the user and payment sides. Variable recurring payments add a route to recurring collections that customers can see and control.

The sensible approach for most businesses is to offer open banking payments alongside cards, connect through an FCA-authorised PISP, and design refund and reconciliation processes around instant, push-based settlement. Done well, bank-to-bank payments can lower cost and fraud while improving the customer experience, without taking on the regulatory burden yourself.

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