If you're a PSP managing payment infrastructure for merchants, chargebacks are one of the most persistent and costly problems in the card payment ecosystem. They create operational overhead, generate unexpected costs, and expose both you and your merchants to fraud risk that is hard to predict and manage.
Pay by Bank payments don’t carry the card-scheme chargeback right, so a whole category of disputes does not apply in the first place.
Here's a typical scenario: A merchant processes what looks like a legitimate transaction, only to face a chargeback weeks later. As the PSP, you're caught in the middle, managing dispute processes, absorbing scheme fees, and potentially losing merchant relationships when chargeback ratios climb. The process is reactive, expensive, and often leaves every party frustrated.
The challenge grows as digital commerce grows. More transactions mean more potential disputes, and card-based infrastructure was not designed for the complexity of modern payment flows. That creates a strategic problem: how do you reduce chargeback exposure while still offering the payment flexibility your merchants need? Open banking offers a practical answer.
Looking to offer open banking to your merchants but not sure where to start? Yapily can help. Speak with an open banking expert to learn more.
Why chargebacks are such a significant problem for PSPs
For PSPs, chargebacks generate multiple cost layers:
Scheme fees: card networks charge fees to process disputes regardless of the outcome.
Operational overhead: managing disputes requires dedicated staff time, documentation, and workflows that do not scale efficiently.
Merchant relationship risk: high chargeback ratios can trigger merchant account restrictions or terminations, putting valuable client relationships at risk.
Reputational exposure: PSPs whose merchants repeatedly exceed chargeback thresholds face scrutiny from card networks and can struggle to maintain processing relationships.
Cash flow impact: funds are often held in reserve to cover potential chargebacks, which affects working capital for both the PSP and the merchant.
The systemic nature of these challenges means chargebacks are not only an operational cost. They are a strategic constraint on how a PSP can scale and serve its merchant base. Card networks also impose chargeback-ratio thresholds through their monitoring programmes, and merchants who breach them face penalties or restrictions, so even a small number of problem merchants can affect your wider risk profile.
How open banking removes card chargebacks
Open banking reduces chargebacks because the customer authorises each payment inside their own banking app using strong customer authentication (SCA). This creates a payment that is both customer-initiated and fully authenticated, which removes the conditions that produce card chargebacks.
To complete a payment, the customer must:
Log in to their banking app
Confirm the merchant and the exact payment amount
Authenticate the payment with biometrics or multi-factor approval
Because the customer pushes the payment and verifies their identity at the bank level, there is no card-scheme chargeback right for the bank to invoke later. The disputes that become chargebacks on cards, such as unrecognised merchant names, unclear transaction details, or weak checkout authentication, do not arise in the same way. In practice, this is the core of how open banking chargebacks work: unlike card payments, Pay by Bank payments are not subject to card-scheme chargeback rules, though other refund, dispute, complaint, or fraud-reimbursement routes may still apply, so the chargeback as PSPs know it does not occur.
Consumers are not left without recourse. If a customer needs their money back, the merchant returns the funds directly through an open banking reverse payment, which avoids scheme fees, arbitration, and the risk of a sudden fund reversal. The result is a faster, more transparent, and more predictable process for both sides.
What open banking does and does not do for fraud
Open banking also closes a specific category of fraud-driven disputes. Because there are no stored card credentials to steal, and because every payment is authenticated by the customer inside their own banking app, the fraud vectors tied to compromised card data and weak checkout authentication are removed. This cuts the chargeback fraud that drives a large share of card disputes.
It is important to be precise about the limit here. Open banking does not make payments fraud-proof. Authorised push payment fraud, where a customer is deceived into approving a payment themselves, is a separate risk that Pay by Bank does not solve for, and PSPs should manage it as its own category. What open banking removes is the stolen-credential and checkout-authentication fraud that sits behind so many card disputes.
Five strategic benefits of open banking payments for PSPs
Once card chargebacks, scheme fees, and weak authentication are taken out of the equation, the economics and risk profile of payments shift in a way that benefits both the platform and the merchants it serves.
1. Lower payment operating costs by removing chargeback-related expenses
Open banking lowers operating costs by removing the need to manage card chargebacks. Without scheme fees, dispute investigations, monitoring requirements, or representment workflows, the cost of each transaction falls.
For example, a PSP processing one million card transactions a year at a 0.5% chargeback rate would handle around 5,000 disputes annually, each carrying scheme fees, internal handling time, and merchant-support overhead. Shifting that volume to open banking reduces this cost category and creates a more predictable, lower-cost structure.
2. A stronger merchant value proposition built on predictable, low-risk payments
Merchants place high value on payment methods that reduce operational friction and revenue uncertainty. By offering open banking payments, PSPs can give merchants an option with no card chargeback exposure, fewer disputes, and clearer authentication.
This is especially attractive to sectors that see elevated dispute rates, including subscription platforms, digital goods providers, and cross-border ecommerce. Those merchants gain steadier cash flow and fewer support issues, while PSPs strengthen retention and win new accounts on the basis of reduced risk.
3. Improved fraud performance through bank-level authentication
Every open banking payment requires strong customer authentication, completed inside the customer's own banking app. That creates a secure, bank-controlled verification step for every transaction.
For PSPs, this reduces exposure to the stolen-credential and weak-checkout fraud that leads to card disputes, and it cuts the chargeback fraud associated with them. Stronger fraud performance also supports better relationships with banks and regulators, who expect high assurance levels for digital payments.
4. Leaner operations as card dispute workflows shrink
For open banking volume, there are no card disputes to investigate, no representment cycles, and no scheme-mandated dispute reporting. As more volume moves to Pay by Bank payments, these workflows shrink, freeing internal resources for higher-value work such as merchant acquisition, product development, and growth projects.
The simpler payment flow also makes it easier to scale into new markets or handle higher volumes without growing operational headcount at the same rate.
5. A stronger competitive position as Pay by Bank payments accelerate
As open banking adoption grows across the UK and Europe, PSPs that offer reliable Pay by Bank payments gain a material advantage. You can serve merchants that struggle with card economics, offer more favourable risk and cost profiles, and differentiate your platform with a secure, low-cost, low-dispute payment method.
This positions PSPs and financial institutions to capture larger volumes as more merchants look for alternatives to conventional card processing.
Why choose Yapily for open banking payments?
Yapily provides the infrastructure PSPs need to deliver open banking payments at scale.
Connections to over 2,000 banks across the UK and Europe
Coverage determines whether a Pay by Bank payment offering can succeed across multiple markets. Yapily provides reliable connectivity to more than 2,000 banks and financial institutions across 19 countries, including the UK, Germany, France, Italy, and the Netherlands. With Yapily maintaining these integrations directly, PSPs avoid the overhead of managing dozens of bank connections, API updates, and market-specific requirements.
Open banking payments and data through a single integration
Yapily is licensed as both a Payment Initiation Service Provider and an Account Information Service Provider. This lets PSPs combine open banking payments with real-time financial data without juggling multiple vendors. Through a single integration, PSPs can:
verify merchant accounts instantly during onboarding
enhance fraud and AML processes using transactional data
offer value-added services such as cash flow insights or financial health checks
Yapily Data Plus enriches raw account data by normalising merchant names, detecting recurring payments, and categorising transactions across business and consumer accounts, so PSPs can build more intelligent financial products and a more robust fraud and risk strategy.
Flexible integration options to suit your payment strategy
Yapily lets PSPs launch Pay by Bank at their own pace while keeping control of the merchant and customer experience. You can choose between two models depending on your timeline, resources, and desired level of customisation.
Yapily's Hosted Pages let PSPs launch quickly without building their own interface. You can tailor branding elements such as colours, fonts, logos, and copy to create a consistent experience inside your existing checkout. This minimises engineering effort while keeping the payment journey smooth and secure.
For PSPs that want to own every element of the experience, Yapily's Direct Integration provides a fully white-label option. You design and build your own branded journey end-to-end, while Yapily manages the underlying infrastructure, bank connectivity, consent flows, and security.
Trusted by leading PSPs and finance platforms
Yapily connects PSPs, platforms, and financial institutions across 19 countries through a single API, reaching more than 500 million accounts across the UK and Europe. It is trusted by companies including Google, Adyen, and Pleo to power their open banking solutions.
Reduce card chargebacks by offering Pay by Bank via Yapily
Card chargebacks are one of the most persistent problems for PSPs in the card ecosystem. Open banking removes the card chargeback mechanism: with authenticated, customer-initiated payments, there is no scheme-level right to reverse a transaction after the fact, which creates a more predictable and secure operating model for both PSPs and their merchants.
Yapily provides the infrastructure to embed these payment flows quickly and reliably. With broad coverage, unified payments and data, and a white-label architecture built for scale, Yapily helps PSPs offer secure, low-cost payments with no card chargeback exposure to merchants across Europe.
Ready to take card chargeback risk off your platform? Contact Yapily today to discuss how open banking can transform your payment operations.