Pay by Bank or Card Terminal? A Practical Decision Framework for UK SMEs

Card acceptance has been the default way for UK businesses to take money for so long that it is easy to treat the alternatives as curiosities. That position is beginning to shift. Open banking payments — commonly marketed as Pay by Bank, account-to-account or bank transfer at checkout — have moved from pilot projects into mainstream payment gateways, and more merchants are now being offered them at the same time as a terminal upgrade or a gateway renewal.

The sensible question for most small and medium-sized enterprises is not whether Pay by Bank replaces cards, but which of their transactions it genuinely suits. The two methods behave differently, and the difference is not confined to the headline rate.

What is actually happening in a Pay by Bank transaction

A card payment travels across the card schemes, carrying interchange, scheme fees and an acquirer's margin. A Pay by Bank transaction bypasses all of that. The customer selects their bank from a list, is redirected to their banking app or online banking, authenticates, and authorises a credit transfer that settles over Faster Payments. The merchant is paid from the customer's account directly, and the payment provider earns a fee for initiating and confirming the instruction.

The practical consequence is a payment that is either made or not made, almost immediately, with no card number to be compromised and no authorisation code to expire.

Comparing the cost base properly

On headline pricing, Pay by Bank is usually cheaper per transaction than card acceptance, and materially so for higher-value baskets. Card interchange in the UK has been capped for consumer cards, but scheme fees, gateway charges, terminal rental or software subscriptions, PCI DSS compliance and monthly minimums all add to the true cost of acceptance. Merchants should build a full cost per hundred pounds taken, not compare a percentage to a percentage.

Against that, Pay by Bank pricing varies considerably between providers. Some charge a flat pence amount per transaction, which favours larger baskets and penalises small ones; others charge a percentage; some bundle the service into an existing gateway contract at little visible cost. Refunds are an operational consideration rather than a pricing one — returning money to a customer who paid by bank transfer may require their account details, and the process can be slower and less familiar to staff than a card refund.

Settlement speed versus settlement predictability

Pay by Bank typically settles to the merchant faster than card, in many cases near-instantly and in others within the same working day. For a business that runs tight working capital, that difference is real. Card settlement generally arrives on a next-day or two-day cycle, though acquirers may extend it for new accounts or higher-risk sectors.

Speed, however, is not the same as predictability. A card acquirer provides a settlement report that reconciles cleanly against the till or the e-commerce platform. With bank-to-bank payments, reconciliation depends on matching incoming credits to orders, which is straightforward for invoice-based B2B payments and less so for high-volume retail where two identical baskets may look identical in the bank feed. Merchants considering Pay by Bank should look closely at how their provider references payments and whether their accounting software can match them automatically.

The dispute question, examined honestly

Cards carry chargeback exposure: a customer can dispute a transaction through their issuer, and the merchant must defend it with evidence. Pay by Bank removes that mechanism, and merchants sometimes conclude that it removes risk altogether. It does not.

Bank transfers in the UK are subject to the mandatory reimbursement regime for authorised push payment fraud, which has been in force since October 2024 and covers losses up to £85,000, with liability shared between sending and receiving payment providers in defined circumstances. A merchant receiving large volumes of transfers from customers who were induced to pay by fraud will face scrutiny of its own controls, and may be asked to contribute. Separately, a business that has delivered goods against a transfer has no scheme process to fall back on; recovery of a disputed payment becomes a civil matter.

In short, Pay by Bank trades a well-defined chargeback process for a different and less familiar set of liabilities.

The customer experience test

The decisive variable is often behavioural. Card acceptance at a counter is fast, requires nothing of the customer but a tap, and works for visitors, tourists and people who have left their banking app at home. Pay by Bank requires the customer to select their bank, leave the merchant's site or app, authenticate in another app, and return. Every one of those steps is a point at which a sale can be abandoned.

Where the merchant and customer already have a relationship — an established trade supplier, a repeat purchaser, an invoice being settled — the friction is negligible and often less than keying card details. Where the customer is unknown and the basket is small, the same friction can be decisive.

Where Pay by Bank tends to earn its place

• B2B invoice settlement, where the payer is a finance team that would otherwise request bank details by email and where the transaction is large enough for card fees to bite.
• High-value online orders in sectors such as furniture, trade supplies or professional services, where fee savings outweigh any conversion loss.
• Thin-margin retail where the card cost per transaction is a meaningful share of gross profit.
• Repeat or account-based customers for whom the journey is familiar and quick.
• Recurring collections through variable recurring payment arrangements, although availability and consumer familiarity remain limited and merchants should check what their provider actually supports.

Where the card terminal still wins

Counter trade in a shop, café, salon or garage remains firmly card territory: contactless is quicker, universally understood, and supports tipping and offline fallback. Card also suits credit-sensitive purchases, tourist-heavy locations, and any setting where staff cannot reasonably coach a customer through an authentication journey at the till.

A checklist before adding Pay by Bank

1. Identify the specific transactions you intend to move, and estimate what proportion of turnover they represent.
2. Calculate a full cost comparison that includes terminal or gateway charges, PCI compliance and dispute administration, not just the percentage rate.
3. Check the provider's refund process and confirm staff can execute it without delay.
4. Confirm how payments will be referenced and reconciled in your accounting software.
5. Assess abandonment risk with real customers on a limited basket range before committing.
6. Verify the contract terms on notice periods and whether the service is tied to a wider gateway agreement.
7. Retain card acceptance in full — Pay by Bank works best as an addition, not a substitution.

Run a pilot for a quarter, measure conversion and settlement outcomes against your card baseline, and let the data decide. Merchants who treat Pay by Bank as a tool for particular jobs, rather than as a cheaper version of the same job, tend to get the most from it.