The complete guide to open banking payments

Open banking has multiple payment types… and they each serve a different purpose. This guide will help you evaluate and choose the right ones for your company.

Ask any merchant what they need right now, and they’ll probably say lower transaction fees. Because every time we tap, swipe or insert our card at the checkout, it incurs a cost. And it’s not just small businesses that feel the impact… enterprises do, too. For every card, e-wallet, or Buy Now Pay Later (BNPL) transaction, the processor takes up to 6%. Yikes!

Remember the Amazon and Visa saga? Amazon warned it would stop accepting UK-issued Visa credit cards at its checkout unless Visa lowered its fees, and Visa accused Amazon of restricting customer choice. Despite reaching a last-minute truce, the retailer’s initial rejection suggests one thing: a shift away from cards, towards account-to-account payments.

Or, in other words, open banking payments. If you’re considering offering open banking as a payment option, but don’t know where to begin, keep reading.

Open banking payments at a glance

First things first, let’s look at different types of open banking payments.

There are single, scheduled, bulk, and variable payments. But, no matter what type you choose, the benefits are the same: faster, cheaper, and more convenient transactions. Check out this table for a comprehensive breakdown…

Payment type Definition Use cases
Single One-time payment made through a bank’s online platform to another bank account without going through a middleman (like a card network) Peer-to-peer payments, account top-ups, invoice payments, and bill payments
Scheduled One-time payment set up in advance and scheduled to happen on a specific date. Peer-to-peer payments, account top-ups, invoice payments, and bill payments
Bulk Multiple payments from a single bank account to a list of recipients in one transaction. Invoice payments, payroll, treasury payments, and interest payments
Variable Recurring Payments A recurring payment where the amount changes each time. Subscription payments, variable interest payments, dividend payments and commerce payments

Now that you’re familiar with different open banking payments, let’s take a closer look at each one.

Single payments

Single payments, also called account-to-account payments, are your average one-time payment. They differ from bank transfers because the payee doesn’t need to enter their bank account information or card details, and the payment is processed instantly, rather than in three business days. Because there are no gateway, processing, or scheme fees, single payments are even cheaper than card transactions. Here’s everything you need to know about them…

Domestic: These are one-time payments made within the same country, using local clearing schemes like BACS for bulk payments and Faster Payments for instant settlement.

SEPA: These payments are domestic (although they can involve cross-border transactions). They’re a way to send money within the Single Euro Payments Area using SEPA Credit or SEPA Instant.

High Value Payments Systems: For high-value payments, a Real-Time Gross Settlement (RTGS) scheme may be used if the payer’s bank supports it.

Cross-Border: These payments use SWIFT, which is a secure and efficient way to transfer money internationally. With SWIFT, cross-border and international payments can be processed quickly and reliably, ensuring that the funds reach the recipient on time.

Use case: Peer to peer payments

Kate and her friends go out for dinner and want to equally split the bill. Before, everyone would have to log into their banking app to send a bank transfer. Now, Kate can log into a money management app like Emma and send a payment link. All her friends have to do is approve the payment and their share of the bill is taken care of. Easy!

Yapily Payments

Yapily Payments allow businesses to offer a frictionless checkout experience at all customer touchpoints. Whether it’s on their website, face-to-face, or in-app, consumers can Pay by Bank however they choose to shop.

Scheduled payments

Scheduled payments are sent directly from the customer’s bank account on a specific date. Normally, customers would have to log into their banking app to schedule an automatic bank transfer. But with open banking, customers can schedule payments within the app of the financial service provider they use. It’s important to note that right now, customers can only change or cancel a scheduled payment through their banking app (if the option is available).

Use case: Bill payments

Adina has multiple bills due on different dates throughout the month. In the past, she would have to log into each service provider’s website to make a payment on the day. It was time-consuming and easy to forget putting Adina at risk of late fees.

Now, she can schedule the payment. She simply logs into her digital banking app and sets up a payment for each bill. Unlike Direct Debit, which involves setting up an instruction and a notorious three-day cancellation rule, Adina enters the amount and the payment is processed directly from her bank account on the date she chooses.

Bulk payments

For years, it’s been impossible for small businesses to pay multiple people at once, like their employees and suppliers. Payroll, for instance, would have to be manually processed. To put that into perspective, small businesses spend over two hours on payroll admin each month.

Now, businesses can submit multiple payments from their phone or desktop in one go (with the help of solutions like our award-winning Bulk feature). But wait, there’s a difference between bulk payments and batch payments. Take a look…

Bulk Batch
Bulk payments are multiple payments made to different recipients, on the same date and using the same account. Batch payments are multiple payments made to different recipients from different debtor accounts.

Batch payments may be used when a company has multiple suppliers and needs to pay them regularly. Rather than paying separately from each account, the company can consolidate the payments into a single batch payment, which is easier to process. The company saves time and effort, and all payments get made on time.

Use case: Payroll

Hamal is a finance manager at a small firm. Every month, he spends hours processing bulk payments for his team’s salaries. The manual process of entering individual details for each payment is time-consuming… and he risks making errors.

Now, Hamal can simplify the process using open banking. He connects the firm’s business bank account to a platform like Comma and submits payroll at once with just a few clicks. In fact, Comma has helped reduce the time finance teams spent making bulk payments by 77%.

Yapily Bulk

Yapily Bulk allows companies to streamline bulk payouts as an embedded process within their own platform. It’s really simple, just a direct API integration into their business bank account. No more file uploads or convoluted processes.

Variable Recurring Payments for sweeping

Variable Recurring Payments (VRPs) enable businesses to collect regular payments using open banking. Today, they can only be used to move money between two accounts belonging to the same person or business. This is called sweeping.

Some examples include:

  • Between current accounts to avoid falling into overdraft
  • To accounts used for loan repayments
  • To a credit card account
  • To cash savings accounts that pay interest

Use case: Intelligent savings

Anna is a young professional who wants to save more money. She uses a personal finance app to track her spending. She often finds that she still has spare money in her account at the end of each month and she doesn’t know what to do with it. Fortunately, there’s a feature on her personal finance app that monitors her disposable income and leftover money. Now, every time she gets paid, the app automatically detects any spare money in her account and sweeps it into her savings.

Variable Recurring Payments for non-sweeping

As we mentioned, right now, VRPs can only move money between two accounts with the same name. But what about the movement of funds between separate accounts?

This is called non-sweeping, and fast-paced innovation in the open banking space will make this a reality in no time. With NatWest, we’re unlocking VRP for sweeping (me-to-me) and non-sweeping (me-to-business) payment use cases, going beyond the minimum regulatory requirements so our customers can make the most of all it has to offer.

Some examples include:

  • Streaming subscriptions
  • Utility bills
  • One-click checkouts
  • Repeat invoices
  • Gym memberships

You might be thinking, doesn’t Direct Debit do that already? You’re right. But over half of UK businesses face a £50 fee for every failed Direct Debit transaction… and hundreds of thousands of Direct Debits fail each year. In fact, 500,000 Direct Debits failed last year.

Learn more about the difference here.

Use case: Membership payments

Marco is the owner of a popular gym. He was previously accepting card payments with high transaction fees and managing Direct Debits for membership payments. He heard about Variable Recurring Payments… and decided to give it a try. Marco integrated with a platform like Volume and was impressed by just how easy it was. With a few clicks, his gym members could pay using Variable Recurring Payments with the flexibility to change tiers at any time.

Yapily Variable Recurring Payments

Yapily Variable Recurring Payments allow merchants and payment providers to use open banking for recurring payments of varying amounts, without reauthenticating every time. With Yapily VRP, our customers like Volume can save costs, increase payment volumes, and provide frictionless alternatives to standing orders and Direct Debit.

Virtual accounts

A virtual account (also known as a vIBAN) is a digital account that can be used to accept and make electronic payments. Payment Service Providers (PSPs) and merchants can use virtual accounts to collect local payments, make instant payouts and refunds, and streamline reconciliation. Other benefits include…

  • Better control over fund distribution
  • More visibility into payment statuses
  • Easier to collect international payments
  • Reduced international collection fees

You can find out how it works here.

Use case: Issuing refunds

Nina is an online shopper who recently purchased a new pair of shoes using Pay by Bank. After receiving the shoes, she realised they were too small, so she contacted the merchant for a refund. Because the merchant uses Virtual Accounts, initiating a refund was seamless and the funds were credited instantly to Nina’s bank account. Plus, the merchant could…

  • Initiate the refund using instant payment rails
  • Validate refund request against original payment amount
  • Easily retrieve refund details
  • Get status notifications

Yapily Virtual Accounts

At Yapily, we’ve combined our open banking API infrastructure with vIBANs provided by a regulated e-money issuer to create Yapily Virtual Accounts. Yapily Virtual Accounts offer a range of features that can be used to power payment processing, like FX, refunds, reconciliation, and settlement. And now, refunding is even easier with our new functionality, which is smoother and more straightforward than reverse payments.

Learn more about Yapily Payments

To sum everything up, open banking payments offer a more convenient way to handle transactions compared to traditional payment methods like card and Direct Debit. So, whether you’re looking to streamline payroll, enhance the checkout process, or upgrade digital banking features, we have an open banking payment solution for every company.

Ready to get started? Check out our payment tutorials now, or get in touch with the team to book a personalised demo.


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