As a payment service provider (PSP) looking into open banking payments, you’re probably experiencing the following:

• You’re tired of the high transaction fees of traditional card networks eating into your profits.
• You’re frustrated with slow settlement times. Whether it’s waiting days for direct debit or card payments to clear, the delays are disrupting your cash flow.
• You’re concerned about security and fraud risks. The threat of fraud and chargebacks always looms large with card-based transactions.

As you’ve probably guessed already, open banking offers a solution to these problems. But you might have a few questions before you get started: how exactly do open banking payments work? What types of payments can you offer through open banking? Are the benefits of open banking worth it for your business?

Read on to find out!

In this article:

• How do open banking payments work?
• The different types of open banking payments
• Three reasons to use Yapily for open banking payments
• When Pleo implemented open banking

Already convinced by open banking and just looking for a reputable provider? Contact one of our open banking experts to find out how we can transform your payments.

How do open banking payments work?

Open banking payments rely on Application Programming Interfaces (APIs) to carry out bank-to-bank transfers. This is different from traditional electronic payments, which rely on traditional payment processors (like Visa and MasterCard) to facilitate transactions.

Open banking APIs enable the direct sharing of financial data between authorised institutions. This supports real-time account verification, confirming key details—such as account ownership, balance, and recent transactions—instantly without needing third-party intermediaries. By avoiding these additional steps, businesses can quickly verify customer details, streamlining onboarding and reducing friction in the user experience.

It’s worth noting that open banking isn’t technically a payment method: it helps with initiating payments, not actually moving the money. Once initiated, the actual transfer relies on systems like Faster Payments (in the UK), or SEPA (in Europe).

What are the benefits of open banking payments?

1. Reduce costs by paying less in transaction fees

Traditional payment methods like cards charge fees as high as 6% per transaction. Open banking payments, on the other hand, allow direct transfers from the customer’s bank account to the merchant, cutting out the middleman and significantly reducing transaction costs.

2. Faster transactions due to instant bank transfers

Another benefit of cutting out intermediaries (such as card networks) is speed. Since open banking account-to-account payments bypass the conventional banking infrastructure and card schemes, the transaction process becomes faster. There’s no need for lengthy authorisation or settlement periods, which can delay access to funds.

3. Improved security with secure API integration

Open banking payments use secure APIs that share only essential transaction data. In contrast, card networks often expose sensitive details like card numbers, expiration dates, and CVV codes during multiple stages of a transaction. This creates more opportunities for data breaches and fraud, as those details can be intercepted or misused at any point in the chain.

Payments are authorised directly through the customer’s bank, with strong customer authentication (SCA) adding an extra layer of protection. SCA typically involves two-factor authentication, like a password and a biometric ID, ensuring that only the authorised person can approve the payment. This makes open banking a safer alternative to card-based payments.

4. Better customer experience through simplified payment flows

Some research shows that 55% of shoppers say that checkout friction can make them abandon a purchase. Fortunately, open banking is a simple way to significantly improve the customer experience.

With open banking, customers don’t need to remember card details or go through lengthy authentication processes. The streamlined payment process allows them to authorise payments directly from their bank account with just a few clicks, leading to a smoother, faster checkout experience, and lower abandoned cart rates.

5. Greater transparency with real-time payment tracking

Card networks often operate with fragmented visibility due to the multiple intermediaries involved. Payment statuses aren’t always immediately clear, which can lead to delays and confusion when verifying transactions.

With open banking payments, however, real-time visibility allows both businesses and customers to track transactions directly from the customer’s bank. This transparency makes it easier to monitor the payment from start to finish.

6. Increased flexibility with Variable Recurring Payments (VRPs)

Variable Recurring Payments (VRPs) are a game-changer for businesses that handle subscription services or any payment where the amount fluctuates. Unlike traditional direct debits, VRPs allow businesses to easily adjust payment amounts based on customer usage, providing both flexibility and control for your merchants and their customers.

Curious to know how open banking is already transforming industries? Check out 6 products you didn’t know were powered by open banking.

The different types of open banking payments

There are a few different types of open banking payments: single, scheduled, bulk, and variable payments.

The benefits of each type are the same: faster, cheaper, and more convenient transactions.

Here’s how each payment type works in more detail:

Single payments

Single payments, also known as account-to-account (A2A) payments, are one-off transfers that move funds directly between accounts using open banking technology. Unlike traditional bank transfers, these payments don’t require the payer to enter bank details or card information manually, as verification is securely handled through open banking APIs. This allows for instant processing, eliminating the typical 3-day delay of standard transfers.

One of the biggest advantages of PSPs offering single payments through open banking is cost. With open banking, there are no gateway, processing, or scheme fees, making single payments a much cheaper alternative to card transactions.

For instance, if a PSP offers A2A payments to an ecommerce business, that merchant can accept instant payments directly from their customer’s bank account to their own, sidestepping traditional card fees and the potential for chargebacks.

This enables the PSP’s clients to reduce transaction costs significantly while offering their customers a fast, frictionless payment experience.

Scheduled payments

Scheduled payments allow businesses or consumers to set up payments that automatically transfer funds on a specific date. These payments are made directly from the payer’s bank account without requiring them to log into a banking app or remember due dates.

However, a key consideration for PSPs is that currently, changes or cancellations to scheduled payments can only be made through the customer’s banking app, assuming the option is available.

Whether you’re handling recurring bill payments or setting up future-dated transactions, scheduled payments simplify the process by enabling automated transfers directly from the bank.

Bulk payments

Processing multiple payments manually has traditionally been a challenge, especially for small and medium-sized businesses. Whether it’s paying employees, suppliers, or handling recurring invoices, manually managing each transaction wastes time and increases the potential for costly errors.

With open banking bulk payments, businesses can consolidate multiple transactions into a single submission—streamlining the process and reducing the administrative burden. By automating these payments, businesses save valuable time and can ensure accuracy, all while lowering transaction fees typically associated with traditional payment methods.

Note: Don’t confuse bulk payments with batch payments. While both consolidate multiple transactions, batch payments typically involve more complex conditions like timing and payment type, whereas bulk payments focus purely on simplifying multiple transactions at once.

For example, consider a small business managing payroll for its employees. In the past, processing each employee’s salary individually would have been time-consuming and prone to mistakes. Now, using Yapily’s Bulk Payment feature, businesses can submit the payroll for the entire team in one go, ensuring each payment is accurate and completed quickly.

By using bulk payments, the finance team can eliminate manual errors, reduce admin time, and make the payment process much more efficient—all from a single interface.

Variable recurring payments (sweeping)

Variable Recurring Payments (VRPs) enable businesses to automate regular transfers using open banking. VRPs are used for moving funds between two accounts under the same ownership, commonly referred to as sweeping. This allows for efficient internal transfers between accounts for tasks like:

• Avoiding overdraft fees by moving funds between current accounts
• Making loan repayments
• Paying off credit card balances
• Transferring funds to interest-earning savings accounts

Sweeping offers businesses a flexible and automated way to manage funds within their own accounts, reducing manual intervention and improving financial management.

Commercial Variable Recurring Payments (cVRP)

Unlike traditional direct debits, which transfer the same quantity of funds each time, cVRP lets businesses take payments that vary with each transaction—perfect for services with fluctuating costs.

Think of it as a smarter, more adaptable alternative to direct debit. Whether you’re running a subscription business or billing customers based on usage (like utilities or ride-sharing), cVRP lets you handle payments directly from your customer’s bank account, without the need for card networks. This means lower fees and fewer headaches.

With cVRP, businesses can avoid the rigid structure of direct debits and offer customers more control and transparency. Each time a payment is made, the customer gives their consent, ensuring flexibility and trust in the process.

Where cVRP shines:

• Subscriptions that change: If your service charges customers based on usage, like streaming services or SaaS, cVRP ensures you can adjust payments without the hassle of managing multiple direct debit mandates.
• Utility bills: Perfect for energy or water companies where the amount fluctuates each month.
• eCommerce: Great for merchants handling repeat orders with varying amounts—like weekly grocery deliveries or meal services.
• Insurance payments: When premiums change, cVRP adjusts automatically, keeping everything seamless for your customers.

Three reasons to use Yapily for your open banking payments

At Yapily, our goal is to challenge traditional payment structures and offer a payment solution that’s better for everyone.

Here’s what you get when you use Yapily for your open banking payments:

Integrate once, and get access to nearly 2,000 banks across the UK and EU

There’s a good chance that you’re not an expert in open banking or payments––and you might not want to be.

With Yapily, you don’t need to be an expert. Getting set up with open banking payments is straightforward. Our secure, ISO-certified API is built for easy integration, backed by clear documentation and a passionate team ready to support you. Plus, you don’t need to worry about going through the complex process to get your own PISP license—you can use ours, saving you time and money.

And once you’re integrated with Yapily and decide to scale, you won’t need to worry about different open banking providers across Europe. We offer coverage across key European markets, connecting to 2,000 banks across Europe—all through a single API.

For example, using Yapily’s open banking payments, Payhawk was able to expand its payment services across key European markets, including the Netherlands, where it saw double-digit growth in customers using open banking for wallet top-ups.

Read more: Payhawk partners with Yapily to provide easier payments across Europe and UK

We are one of the only providers of commercial variable recurring payments in the UK

Are you tired of the high fees and lack of flexibility that come with Direct Debit? Many businesses feel stuck relying on it, but there’s a better solution: cVRP (Commercial Variable Recurring Payments). With cVRP, you can benefit from lower fees, greater control, and a smoother payment experience for your customers.

Yapily was the first provider to bring cVRP to the UK market, and we’re still leading the way. HungryPanda is a perfect example of how cVRP can transform business operations. By integrating Yapily’s cVRP, they reduced payment failures, lowered costs, and improved the overall experience for both customers and internal teams, driving higher retention and operational efficiency.

(Learn more about our work with HungryPanda)

And to make sure that your business reaps the full benefits of cVRP, our dedicated onboarding assistance and expert consultation support you at every step. We’ll help optimise your setup, improve the integration process, and get you up and running quickly.

Handle high volumes of transactions and white-label your payments

If you’re new to open banking, you might be wondering if it’s up to the task of handling high volumes of transactions. Despite being relatively new, open banking is already proving its reliability on a large scale. In January 2024, open banking payments hit a record 14.5 million transactions, reflecting a 69% growth year-on-year. These payments now represent around 4.3% of the UK’s Faster Payments volume, a clear indication of its growing trust and adoption.

Yapily is here to support your business as it scales. Our enterprise-ready API is trusted by some of the biggest names in payments, ensuring it can handle high transaction volumes without compromising performance.

We also believe that your brand should be at the forefront, while we provide you with the open banking infrastructure to thrive.

If you have your own license, you can fully white-label and customise your payment pages, or you can use our PISP license with only a small mention of Yapily. Need to move fast? Our hosted payment pages are ready to go, giving you a quick, seamless start without sacrificing your brand.

When Pleo implemented open banking: over €7 million in wallet-top-ups

Pleo is transforming the way businesses manage expenses by offering company cards and real-time expense tracking for finance teams. But topping up the Pleo wallet used to be a manual, time-consuming process, causing unnecessary delays and cash flow issues.

With Yapily’s open banking integration, Pleo transformed this process. Rather than relying on outdated manual top-up processes, finance teams can now top up their accounts instantly through automated bank transfers. This real-time capability reduces administrative burdens, eliminates errors from manual input, and speeds up day-to-day financial operations.

As Pleo expanded across Europe, including France and the Netherlands, Yapily’s single API and extensive bank coverage made scaling effortless. After just a few months, €7.3 million in wallet top-ups have been processed through Yapily’s open banking infrastructure across the UK, Netherlands, and France.

By partnering with Yapily, Pleo is delivering a solution that empowers businesses to focus on growth.

Choose Yapily as your open banking partner

Open banking payments have revolutionised the financial landscape.

These transactions are faster, cheaper, and more secure than traditional payments, increasing the accessibility of payments for your merchants and end-users. If you’re ready to get started with open banking, check out our payment tutorials or get in touch with the team to book a personalised demo.

Sources:

• https://theecommmanager.com/tools/best-bnpl-platforms/
• https://www.pymnts.com/news/retail/2024/brands-rethink-policies-as-returns-fraud-escalates-with-ecommerce-growth/
• https://www.openbanking.org.uk/insights/latest-impact-report-shows-strong-growth-and-the-power-of-payments/