Last updated: November 2024

Card payments carry hidden costs at every stage of the transaction flow. Pay by Bank removes most of them. Here's a clear breakdown of where payment costs come from and how Pay by Bank via Fena reduces them structurally for UK merchants.

The real cost of accepting card payments isn't the number on the pricing page

Every UK merchant who accepts card payments knows there's a processing fee. Most merchants know it's a percentage of each transaction, sometimes plus a fixed amount. Fewer merchants have a clear picture of everything else embedded in that rate — and why it adds up to more than it looks.

Card payments don't involve one fee. They involve a stack of costs at each stage of the transaction: initiation, processing, clearing, settlement, fraud management, and infrastructure. Most of these are invisible — absorbed into the headline rate charged by gateways, or appearing as separate line items that don't get scrutinised as closely as they should.

Pay by Bank, available through Fena for UK Shopify and WooCommerce merchants, works on a fundamentally different architecture. Because it routes payments directly between bank accounts using open banking infrastructure rather than through card networks, it removes or reduces costs at every stage of the stack — not just at the headline processing rate.

This guide works through each stage of the payment flow, explains what costs card-based payments carry at that stage, and shows how Pay by Bank changes the picture.

Quick summary

• Card payment fees are not a single charge — they're a stack of costs across initiation, processing, clearing, settlement, fraud management, and infrastructure, most of which are invisible to merchants

• Pay by Bank bypasses card network infrastructure entirely, which removes the most expensive layers: interchange fees, scheme fees, and the acquirer margin that sits on top of them

• Settlement is faster with Pay by Bank — same-day or instant versus one to three business days for cards — which improves cash flow and reduces working capital requirements

• Fraud and chargeback costs are structurally lower because bank authentication replaces card credential verification and the card dispute mechanism doesn't apply

• Reconciliation and operational overhead are simplified by real-time payment confirmation and direct bank-to-bank settlement

• For most UK merchants, the combined saving across all layers is substantially higher than the headline processing fee comparison suggests

The layers of cost in a card payment

It helps to think about card payment costs not as a single percentage but as a series of layers, each adding cost, complexity, or both. Here's what's actually happening — and what it costs — at each stage.

Layer 1: Payment initiation and authentication

With card payments:

The customer enters their card number, expiry date, and CVV. For 3D Secure transactions, there's an additional authentication step. Each of these steps adds time and friction, and friction at checkout has a well-documented relationship with abandonment. The authentication infrastructure — including 3DS processing — also carries a cost that gets absorbed somewhere in the payment stack.

With Pay by Bank:

The customer selects Pay by Bank, chooses their bank, and authenticates within their own banking app using their existing credentials — biometrics or PIN. This is the same action they take to check their balance. There's no card number to find, no CVV to enter, and no separate authentication step — bank-level Strong Customer Authentication (SCA) is built into the flow by design.

The checkout experience is faster and involves fewer points of failure. For merchants, the practical effect is a reduction in payment step abandonment, particularly on mobile where card entry is most friction-heavy.

Layer 2: Processing and clearing

With card payments:

A card transaction passes through multiple parties before it settles. The payment gateway authorises the transaction. The card network — Visa or Mastercard — processes and clears it. The issuing bank (the customer's bank) and the acquiring bank (the merchant's bank) both play roles. Each party in this chain takes a margin: interchange fees set by the card network, scheme fees charged by Visa or Mastercard, and the acquirer's own margin on top.

These fees are largely invisible to merchants because they're bundled into the headline rate charged by the gateway. But they're real and they scale directly with transaction volume. For UK consumer debit cards, interchange is typically 0.2% of the transaction value. Credit and commercial cards are higher. Scheme fees and acquirer margins add further on top.

With Pay by Bank:

Payment moves directly from the customer's bank account to the merchant's bank account using UK open banking payment rails. There is no card network in the flow. No Visa. No Mastercard. No interchange. No scheme fees. The cost structure reflects the actual infrastructure being used — direct bank-to-bank transfer — rather than the accumulated margins of a multi-party card network.

For merchants processing meaningful volume, this layer alone represents the largest component of the cost saving available through Pay by Bank.

Layer 3: Settlement and reconciliation

With card payments:

Settlement typically takes one to three business days, running through card network clearing cycles. For merchants managing payables, supplier relationships, or payroll against incoming revenue, this delay creates a persistent gap between when money is earned and when it's available. Reconciliation involves matching batch settlement statements — which arrive days after the transactions they represent — against order records, a process that consumes finance team time and introduces the risk of errors.

With Pay by Bank:

Settlement is same-day or instant. The payment confirms in real time, funds move directly, and the merchant's account reflects the incoming payment immediately. Each transaction is confirmed individually rather than batched, which makes reconciliation straightforward — there's a one-to-one relationship between the payment confirmation and the order record, rather than a batch of settlements to match against a window of transactions.

For finance teams, this simplification reduces reconciliation time and improves the accuracy of cash flow reporting. For CFOs, real-time settlement means cash flow forecasts are based on confirmed positions rather than estimates of when pending transfers will land.

Layer 4: Fraud management and chargeback costs

With card payments:

Card fraud is a persistent and structurally embedded cost. Stolen card credentials can be used without the cardholder's knowledge; card testing attacks probe for valid numbers in bulk; and the chargeback mechanism — which protects consumers but exposes merchants — allows transactions to be reversed after settlement, often weeks or months later.

Fraud prevention tools — 3DS, fraud scoring, velocity rules — reduce but don't eliminate this exposure, and they carry their own costs. Chargeback fees in the UK typically run £10 to £25 per case, plus the operational cost of evidence handling. Merchants with elevated chargeback rates face higher processing fees, rolling reserves, and the risk of card network monitoring programmes that bring additional penalties.

With Pay by Bank:

Unauthorised transaction fraud is substantially reduced because bank authentication replaces card credential verification. Stolen card numbers are irrelevant — the payment requires active authentication by the genuine account holder within their banking app. There's no card credential to steal and no card testing attack vector.

Critically, there is no card chargeback mechanism. Pay by Bank transactions don't go through card networks, so card network dispute processes don't apply. The chargeback fee doesn't exist for these transactions. The evidence handling workflow doesn't exist. The scheme monitoring threshold doesn't include this volume. The operational and financial cost of card disputes is removed entirely on Pay by Bank transactions.

Layer 5: Infrastructure and integration

With card payments:

Accepting cards at scale typically involves managing multiple systems — the payment gateway, fraud tooling, 3DS providers, chargeback management platforms, and reconciliation systems. Each integration requires maintenance, each provider has their own update cycle and compliance requirements, and the combined infrastructure has real ongoing cost in both money and internal resource.

PCI DSS compliance is a specific overhead worth mentioning. Merchants who handle card data must meet Payment Card Industry Data Security Standards. The compliance requirement varies by transaction volume and how card data is handled, but it represents a meaningful ongoing cost — in assessment fees, security tooling, and the staff time required to maintain compliance.

With Pay by Bank:

Because no card data is transmitted or stored, PCI DSS requirements don't apply to the Pay by Bank payment flow. A single API connection covers the bank-to-bank payment infrastructure, rather than a stack of card-specific integrations. For merchants moving meaningful volume to Pay by Bank, the simplification of the payments infrastructure is a real operational benefit alongside the direct cost savings.

What the combined saving looks like

Working through each layer individually makes it clear that the cost difference between card payments and Pay by Bank isn't just the headline processing rate comparison. It's the sum of:

Direct processing cost savings

from removing interchange, scheme fees, and card network infrastructure costs from the transaction. This is typically the largest single component.

Chargeback cost elimination

on Pay by Bank volume — no fees, no operational handling, no monitoring programme risk. For merchants with meaningful chargeback rates, this can be a substantial saving in its own right.

Cash flow improvement

from same-day or instant settlement rather than one-to-three-day card clearing cycles. The working capital benefit of not having earned revenue sitting in transit is real, particularly at higher transaction volumes.

Reconciliation efficiency

from real-time, individually confirmed transactions rather than batched settlement statements requiring manual matching.

Infrastructure simplification

from removing PCI compliance requirements and reducing the number of payment systems requiring integration and maintenance.

For a UK Shopify or WooCommerce merchant processing £1M annually, even a modest combined reduction of two percentage points in effective payment cost — accounting for all layers, not just processing rates — represents £20,000 in annual saving. At higher volumes, the figures scale accordingly.

How to implement Pay by Bank via Fena

Fena's Pay by Bank integration connects to Shopify and WooCommerce directly, adding Pay by Bank as a checkout payment option alongside your existing payment methods. The implementation process doesn't require replacing your card payment infrastructure — it adds Pay by Bank as an additional option and captures the cost and operational benefits on the proportion of volume where customers choose it.

The practical steps are straightforward. Select Fena as your open banking payment provider — Fena is FCA-authorised to process open banking payments in the UK and supports the major UK banks. Integrate via Fena's Shopify or WooCommerce plugin. Pay by Bank then appears at checkout for your customers, and transactions begin settling in real time from day one.

As Pay by Bank adoption among UK consumers grows — over 11 million UK consumers already use open banking services monthly — the proportion of your transaction volume that benefits from the full cost saving increases over time.

Frequently asked questions

How does Pay by Bank reduce transaction costs?

Pay by Bank removes the card network infrastructure layer from the transaction — no interchange fees, no scheme fees, no acquirer margin on top of network costs. It also eliminates card chargeback costs, reduces fraud management overhead through bank-level authentication, and simplifies reconciliation through real-time settlement. The saving comes from all of these layers combined, not just the headline processing rate.

How much cheaper is Pay by Bank than card payments in the UK?

The exact difference depends on your current card mix, gateway rates, and chargeback profile. The headline processing rate saving from removing interchange and scheme fees is typically one to two percentage points. Adding chargeback cost savings, reconciliation efficiency gains, and infrastructure simplification, the total effective saving is often higher than the processing rate comparison alone suggests.

Does Pay by Bank eliminate chargebacks?

Yes, for transactions processed through Pay by Bank. Because the payment doesn't go through card networks, card chargeback mechanisms don't apply. There are no chargeback fees, no evidence handling requirements, and no card network monitoring thresholds on Pay by Bank volume.

How quickly does Pay by Bank settle?

Pay by Bank via Fena settles same-day or instantly, compared to the one-to-three-day clearing cycle standard with card payments. Funds move directly between bank accounts and the merchant's account reflects the payment in real time.

Do I still need PCI compliance if I use Pay by Bank?

PCI DSS requirements apply to the handling of card data. Pay by Bank transactions involve no card data — there's nothing to be PCI compliant about for those payments. If you continue to accept cards alongside Pay by Bank, PCI compliance still applies to the card payment flow.

Can Pay by Bank replace card payments entirely?

For most UK merchants, Pay by Bank works best as part of a payment mix rather than as a complete card replacement. Cards and digital wallets remain the right choice for international customers, fast impulse purchases, and customers with stored credentials. Pay by Bank captures the cost and chargeback benefits on the volume where customers choose it — and that proportion grows as open banking familiarity increases among UK consumers.

Is Pay by Bank via Fena regulated?

Yes. Fena is FCA-authorised to provide open banking payment services in the UK. Pay by Bank via Fena operates on the same regulated open banking infrastructure used by the major UK banks and over 11 million UK consumers monthly.