You may have been nudged towards a new payment method if you’ve bought something online recently.
Last year, around 25 million transactions were processed in the UK every month by Pay by Bank – and it is getting more popular, with industry body Open Banking citing 30 million transactions this January.
Businesses – and even state organisations such as HMRC and NS&I – claim Pay by Bank is quicker and easier than a traditional card payment. Yet, firms have a vested interest, as Pay by Bank processing fees are cheaper than card transactions.
But with vital credit and debit card consumer protections lacking from this form of payment, consumer expert Scott Dixon warns it could leave you high and dry if a purchase goes pear-shaped.
He says: ‘I believe customers should avoid using Pay by Bank wherever possible, particularly for high-ticket purchases like holidays, future-dated purchases like concert tickets or if buying from unfamiliar sellers.’
What exactly is Pay by Bank?
It lets you pay for things without putting in your debit or credit card details.
You click the Pay by Bank option, then select the name of your bank. You will be redirected to your banking app on your mobile phone, where you must log in as normal.
It will ask you to approve or decline the transaction. If you approve it, you will be redirected to the retailer’s website where the order is confirmed.
Payments are usually made instantly but transactions can take a couple of hours to show up in your account.
Retailers using Pay by Bank include Amazon, eBay, Just Eat, Papa Johns and Ryanair. While it is typically used for online transactions, it is possible to use it in shops via QR codes, although this is not yet the norm.
Pay by Bank lets you pay for things without putting in your debit or credit card details…
… but if you use the payment method, you lose the consumer protection you normally get from a credit or debit card, as the transaction is effectively a bank transfer
It allows money to be transferred directly from your bank to the retailer’s and your information is transferred securely.
Since March 2021, taxpayers can pay self-assessment bills using Pay by Bank. HMRC, which has since expanded its use, collected more than £12billion in tax via this method in 2024-25.
Some savers and investors also use Pay by Bank to quickly transfer money from their current accounts, with Hargreaves Lansdown and Trading 212 both giving the option.
Pay by Bank advocates claim it is quicker and easier for consumers. There is no typing in a long card number, expiry date or security code number. And they say it reduces the chance of using incorrect account or payee details and sending money to the wrong place.
Jason Tassie, founder of comparison site knowyourbusiness.co.uk, said: ‘Retailers have a big financial incentive to push Pay by Bank because the fees are so much lower.
‘Card transactions usually cost merchants between 1 and 3 per cent but Pay by Bank payments are typically between 0.1 per cent and 1 per cent.’
What do you lose?
If you use Pay by Bank, you lose the consumer protection you normally get from a credit or debit card, as the transaction is effectively a bank transfer.
Riccardo Tordera, vice-president of policy and government relations at The Payments Association, says: ‘This lack of familiar safeguards might become the biggest obstacle stopping shoppers from trusting Pay by Bank for everyday retail spending.’
When using a credit card, Section 75 of the Consumer Credit Act 1974 gives consumers protection for purchases between £100 and £30,000. If something goes wrong with the purchase, the credit card company is jointly liable with the retailer.
Consumer expert Scott Dixon believes customers should avoid using Pay by Bank wherever possible, particularly for future-dated purchases like concert tickets
On debit card purchases, if something goes wrong you can use the chargeback system to try to claw back the money. But you will not get these protections if you use Pay by Bank.
The Consumer Rights Act 2015 can entitle customers to refunds but may be tricky and time-consuming to enforce. In extreme cases, you may need to consider the Small Claims Court.
If you buy something via Pay by Bank, you could face serious problems if the retailer goes bust. You would need to register as an unsecured creditor with administrators.
Is Pay by Bank open to scams?
Retailers can only offer Pay by Bank via commercial contracts with regulated third-party open banking payment providers, such as Truelayer and Trustly. You also do not have to share any card details.
If a fraudster uses Pay by Bank to make an unauthorised purchase, you can get redress of up to £85,000 via the Payment Services Regulations.
Rob Woods, fraud and identity expert at LexisNexis Risk Solutions, says while he thinks Pay by Bank is secure, ‘there is always a risk of fraud’, adding: ‘We see this most commonly as either account takeover fraud, where the fraudster makes a payment on the account owner’s behalf, or via a social engineering scam where the genuine customer is tricked into making the payment by the fraudster.’