Refunds with open banking work by initiating a new account-to-account payment from the merchant to the customer’s bank account. Because open banking payments are push-based and irreversible, refunds are not reversals of the original transaction. Instead, they are processed as a new payment using the customer’s account details, often referred to as a reverse payment.

This method allows businesses to issue secure, instant refunds directly to the original payer, without involving card networks, chargebacks, or high transaction fees.

How open banking refunds work

Open banking refunds are based on direct bank transfers. When a customer pays using open banking, their money is sent directly from their bank account to the merchant’s account. The payment is final and cannot be undone.

To issue a refund, the business initiates a second payment in the opposite direction. The customer’s bank account details, collected during the original transaction with their consent, are used to send the money back automatically.

This process mimics the experience of a traditional refund, but it happens through bank rails rather than card systems.

The refund process in open banking

Here’s how the open banking refund flow works in practice:

1. Original payment with refund details

When a customer pays using open banking, the payment provider or platform can request the payer’s account details during the initial transaction. If the bank supports it, and the user consents, these details are shared securely and stored.

2. Refund issued as a new payment

If a refund is needed, the platform retrieves the stored details and initiates a new payment from the merchant’s account to the customer’s. This requires no additional action from the customer and can be processed in seconds via Faster Payments or SEPA Instant.

This type of refund is often called a reverse payment, but for the user, it works just like a standard refund, only faster and with fewer fees.

Benefits of open banking refunds vs card refunds

Open banking refunds reduce operational effort and offer a better customer experience. For merchants, this leads to faster resolution, improved satisfaction, and lower costs.

How to set up open banking refunds

To offer refunds using open banking, you need a provider that supports both payment initiation and refund automation. Here are the key steps:

1. Choose a Payment Initiation Service Provider (PISP) like Yapily: Work with a regulated provider that supports capturing payer details and initiating refunds as new payments.

2. Integrate the payment API: During the initial transaction, request payer account details (where supported). Ensure this happens with explicit user consent.

3. Store account information securely: Save the details in your system, linked to the original transaction ID.

4. Trigger refunds via API: When needed, call the provider’s API to initiate a refund using the stored data. No manual entry is required from the customer.

5. Automate reconciliation: Use metadata and webhooks to track refund status and update internal records automatically.

Some providers also offer hosted solutions that allow you to go live quickly with pre-built refund pages. This is ideal if you want a faster time to market without building the full front end.

Why open banking refunds are a better option

Open banking refunds offer more than just speed. They support secure, closed-loop payments, which means funds can only be refunded to the verified account that originally made the payment. This reduces the risk of fraud and payout errors.

They also offer a fully self-serve experience. Platforms can allow users to request refunds without human involvement, thanks to stored payer details and instant payment rails.

Because they bypass card schemes entirely, there are no chargebacks or dispute fees, making costs lower and margins more predictable.

Using Yapily to offer open banking refunds

Yapily is an open banking infrastructure provider that enables secure, instant refunds via APIs through a single integration. Unlike branded overlay providers, Yapily acts as pure infrastructure, so you retain full control over the refund flow and customer experience.

Some key features:

• Support for both consumer and business accounts across the UK and Europe
• Reverse payment support across all CMA9 banks in the UK via Faster Payments
• European refund compatibility through Berlin Group APIs, where available
• Single integration for both pay-ins and refunds
• Optional hosted pages for rapid deployment

Because Yapily is also an Account Information Service Provider (AISP), you can layer in account verification, affordability checks, and transaction data alongside payments, without needing multiple providers.

Build a better refund experience with open banking

Open banking refunds give you and your merchants a faster, cheaper, and more secure alternative to traditional card-based refunds. By issuing refunds as new account-to-account payments, you reduce cost, avoid chargebacks, and deliver a smoother customer experience.

To get started:

1. Choose a PISP like Yapily that supports open banking refunds
2. Integrate the API into your platform
3. Collect payer details during the initial payment
4. Trigger and automate refunds using stored data
5. Track refund success in real time

A provider like Yapily gives you the infrastructure to do all of this at scale. You can start fast with hosted pages or build a fully custom flow via APIs through a single integration.

To get started, book a call with an open banking expert at Yapily.

FAQ: How do refunds work with open banking?

1. Can I reverse an open banking payment? No. Open banking payments are push-based and final. Refunds are issued by creating a new payment back to the customer’s account.

2. Are open banking refunds instant? Often yes. If the payer’s bank supports Faster Payments or SEPA Instant, the refund can arrive in seconds.

3. Do I need customer input to process a refund? No. If their account details were collected during the original payment (with consent), refunds can be processed automatically.

4. Can I automate refunds through my platform? Yes. With the right API integration, refunds can be triggered automatically based on your business logic, with no manual steps required.

5. How do I start offering open banking refunds? You’ll need to integrate with a regulated open banking provider. Yapily offers developer-friendly APIs, hosted options, and full refund support across the UK and EU.