Last updated: October 2025

PayPal and Pay by Bank via Fena serve different purposes for UK Shopify merchants. Here's a direct comparison of fees, settlement timing, chargeback exposure, and account risk — with honest guidance on which to use for which transactions.

Two payment methods with fundamentally different economics

PayPal and Pay by Bank via Fena are both available to UK Shopify merchants, both familiar enough to UK shoppers to convert, and both capable of processing payments within seconds. The similarities end there.

PayPal is a card-network-adjacent system — it operates in the familiar territory of digital wallets, buyer protection, and card-linked payment infrastructure. Its fees reflect the cost of that infrastructure. Its dispute mechanism reflects card network rules. Its account risk model reflects the volatility of merchant accounts that sit inside a platform that monitors and controls their fund access.

Pay by Bank uses UK open banking infrastructure. It settles directly between bank accounts, bypassing card networks entirely. Its fee structure reflects the cost of bank-to-bank transfer rather than card network processing. Its dispute model is direct between merchant and customer rather than arbitrated by a third-party platform. And there's no merchant balance to freeze because there's no intermediary holding the funds.

This guide compares both on the dimensions that matter most for UK Shopify merchants: fees, settlement speed, chargebacks, account stability, and which payment method is the better fit for which transactions.

Quick summary

• PayPal's UK merchant fee structure — approximately 2.9% plus £0.30 per transaction, with additional charges for cross-border, FX conversion, and chargebacks — makes it one of the most expensive mainstream payment methods at scale

• Pay by Bank via Fena processes at a fraction of this cost, with no percentage fee, no chargeback mechanism, and same-day or instant settlement

• For a merchant processing £50,000 monthly through PayPal, the combined fee, chargeback, and FX cost typically runs £1,800–£2,000 per month; the equivalent through Pay by Bank via Fena is typically under £200

• PayPal remains the better choice for international customers and the segment of UK shoppers with established PayPal habits who specifically prefer it; these genuine use cases should not be dismissed

• Pay by Bank via Fena is the better choice for the majority of UK domestic transactions where cost, settlement speed, and account stability are the priorities

• The recommended 2025 payment stack for most UK Shopify merchants: Pay by Bank primary for UK domestic, cards as secondary, PayPal as accessible tertiary for the segments that need it

Fee comparison: what each payment method actually costs

PayPal fee structure for UK Shopify merchants in 2025:

The standard PayPal merchant fee for domestic UK transactions is approximately 2.9% of transaction value plus £0.30 fixed per transaction. For cross-border payments — customers paying from non-UK PayPal accounts or in foreign currencies — the rate increases to between 3.4% and 4.9% depending on the originating country.

On top of the transaction fee, PayPal charges a currency conversion spread of typically 3–4% when funds are converted between currencies, which applies to international sales and withdrawals where currencies don't match. Merchants on the Shopify Basic plan also pay Shopify's third-party gateway surcharge of 2% on PayPal volume.

Chargebacks add a fee of approximately £14–£20 per dispute, applied regardless of whether the merchant wins. For merchants with any meaningful chargeback rate, this adds materially to the effective cost of PayPal processing.

Pay by Bank via Fena fee structure:

Pay by Bank via Fena operates on a fixed fee per transaction model rather than a percentage of transaction value. The fixed fee is typically in the range of £0.10–£0.20 per payment depending on volume, with no percentage component, no FX spread for UK domestic transactions (which settle in GBP between UK bank accounts), and no chargeback fees because no chargebacks exist.

There is no Shopify third-party gateway surcharge for eligible merchants, and no rolling reserve.

The cost difference in practice:

For a merchant processing £50,000 monthly with 1,000 transactions:

PayPal costs: 2.9% of £50,000 (£1,450) plus £0.30 × 1,000 (£300) plus estimated chargebacks at a modest rate (£100–£150) plus FX and miscellaneous adjustments (£100–£200). Total: approximately £1,950–£2,100 per month. Annually: approximately £23,400–£25,200.

Pay by Bank via Fena costs: 1,000 transactions × £0.15 fixed fee = £150. Total: approximately £150 per month. Annually: approximately £1,800.

The annual saving from routing PayPal-equivalent volume through Pay by Bank via Fena for this merchant is in the range of £21,000–£23,000. The magnitude scales with volume and is not a function of any promotional rate — it reflects the structural difference between percentage-based card network processing and fixed-fee bank-to-bank transfer.

Settlement speed: instant versus delayed

PayPal settlement:

Standard PayPal payouts to the merchant's bank account take 24–72 hours after the funds are released from the PayPal balance. For merchants with clean accounts and no active risk flags, this is the typical experience. For merchants with elevated risk scores, pending verification requests, or rolling reserves applied, the timeline extends significantly — from 21 days to 90 days in the reserve model.

The critical point is that PayPal holds merchant funds in a PayPal balance before releasing them. The merchant's earned revenue is in a third-party account, subject to PayPal's policies and risk reviews, rather than in the merchant's own bank account. This creates a structural working capital gap that doesn't exist in direct bank-to-bank payment models.

Pay by Bank via Fena settlement:

Pay by Bank transactions settle same-day or instantly. When a customer authorises the payment through their banking app, the funds transfer directly from the customer's bank account to the merchant's bank account. There's no intermediary balance, no batching, no hold, and no release cycle. Revenue earned today is in the merchant's bank account today.

For merchants managing inventory purchasing, fulfilment costs, or marketing spend against incoming revenue, the timing difference between PayPal's 24–72 hour settlement and Pay by Bank's same-day settlement has real working capital implications. At £50,000 monthly revenue, a 48-hour settlement delay means approximately £3,300 of earned revenue is in transit at any given time — capital that's unavailable for operational use.

Chargebacks: structural exposure versus structural absence

PayPal chargebacks:

PayPal operates within card network rules that give customers the right to dispute transactions after payment, for periods of up to 180 days. When a customer raises a dispute through PayPal or through their card issuer, PayPal initiates a formal chargeback process. Funds are provisionally removed from the merchant's account. The merchant has a deadline to submit evidence. The outcome is determined by PayPal's review.

The merchant pays a dispute fee (approximately £14–£20 per case) regardless of outcome. Winning a dispute returns the transaction value but not the dispute fee. Losing costs the transaction value, the goods or services, and the fee. And beyond individual cases, a rising chargeback ratio triggers PayPal's escalating risk response — higher reserves, slower payouts, and ultimately account limitations.

For merchants in categories with elevated chargeback rates — regulated products, high-value goods, digital products — this structural chargeback exposure is one of the most significant ongoing operational costs associated with PayPal.

Pay by Bank chargebacks:

Pay by Bank transactions don't go through card networks. Card chargeback mechanisms don't apply. There's no chargeback fee, no dispute timeline, and no impact on a chargeback ratio. When a customer has a dispute with a merchant about a Pay by Bank purchase, it's handled directly between them — the merchant controls the process, and there's no third-party arbitration with a buyer-favourable default.

This is not a fee reduction — it's a structural removal of the mechanism that creates the cost. The distinction matters because it means the saving isn't dependent on maintaining a low chargeback rate; it applies to every Pay by Bank transaction regardless of category or dispute history.

Account stability: platform risk versus banking infrastructure

PayPal account risk:

PayPal maintains merchant accounts within its own platform. This gives PayPal the ability to apply rolling reserves (holding back a percentage of merchant revenue), pause or delay payouts, restrict account functionality, and in serious cases permanently limit accounts. These actions can be taken quickly, sometimes without prior notice, and they affect funds the merchant has already earned.

The triggers for these actions include product category risk, sudden changes in order volume or average order value, elevated dispute rates, incomplete KYB documentation, and patterns that PayPal's automated systems flag as elevated risk. For merchants in regulated categories — CBD, supplements, peptides, vape — the category risk alone means a higher baseline probability of account action regardless of how the specific operation is managed.

Pay by Bank account stability:

Pay by Bank via Fena settles funds directly to the merchant's bank account. There's no intermediary balance and no Fena-operated merchant account holding funds. Once a payment is authorised, the funds transfer directly. Fena doesn't have the structural ability to hold merchant funds the way PayPal can because there's no merchant balance to hold — the funds are already in the merchant's bank account.

Fena is FCA-authorised, which provides a regulatory foundation that's more stable than platform-level policy. The compliance framework is set by the FCA rather than by Fena's internal risk models, which means the eligibility requirements are based on legal UK operation rather than on Fena's assessment of individual merchant risk profiles.

Cross-border payments: where PayPal retains an advantage

Pay by Bank via Fena is strongest for UK domestic transactions — customers with UK bank accounts paying UK merchants in GBP. For this transaction type, its fee, settlement, and chargeback advantages are clearly superior.

PayPal retains genuine advantages for international customers who use PayPal as their cross-border payment mechanism. International buyers who have PayPal accounts can pay UK merchants in their own currency, with PayPal handling the conversion. The familiarity of the PayPal brand across markets makes it a trust signal for international shoppers in a way that UK open banking infrastructure is not.

For UK merchants with significant international customer bases, this means PayPal has a legitimate role in the payment mix that isn't primarily about cost efficiency — it's about reach. Removing PayPal for international customers would directly affect conversion for that segment. Keeping PayPal accessible for international customers while routing UK domestic volume through Pay by Bank is the commercially rational approach.

Customer experience and conversion

The conversion comparison between PayPal and Pay by Bank has shifted in Pay by Bank's favour over the past two years as open banking adoption among UK consumers has grown. Over 11 million UK consumers now use open banking services monthly, and the authentication flow — choosing a bank, being taken to the banking app, confirming with biometrics — is increasingly familiar rather than unfamiliar.

For customers who are specifically PayPal users with persistent sessions and stored credentials, PayPal's checkout flow is fast and familiar. For customers who don't have an active PayPal session, or who are making a first purchase from an unfamiliar merchant and are cautious about the PayPal login flow, Pay by Bank can offer a simpler path — the customer uses the banking app they're already logged into, authenticates with biometrics they use daily, and the payment is done.

The honest assessment is that conversion parity with PayPal is achievable for the majority of UK domestic customer segments, and in some demographics Pay by Bank already outperforms. Testing is the right approach — positioning Pay by Bank prominently and measuring actual routing and conversion outcomes against your specific customer base gives you real data rather than an assumption about which performs better.

Which to use when: a practical guide

Use Pay by Bank via Fena as the primary method for:

UK domestic transactions where cost efficiency matters; high-value orders where the absolute fee saving is largest; categories with elevated chargeback rates where removing the mechanism has the most commercial impact; merchants who have experienced PayPal account holds or reserves and want to reduce dependency; and any transaction where same-day settlement is operationally important.

Retain PayPal as a secondary or tertiary option for:

international customers who use PayPal as their preferred cross-border payment method; UK customers with established PayPal habits who specifically select it; higher-value purchases where PayPal's buyer protection is a meaningful factor in the customer's decision to proceed.

Both side by side for:

the majority of UK Shopify stores, where the optimal configuration is Pay by Bank first in the checkout flow for maximum domestic conversion and cost efficiency, with PayPal visible but secondary for the customer segments that need it.

Frequently asked questions

Does Pay by Bank replace PayPal entirely?

For most UK merchants, no — but it should replace PayPal as the primary payment method for domestic UK transactions. PayPal remains valuable for international customers and habitual PayPal users; these are genuine conversion contributions that shouldn't be discarded. The recommended approach is Pay by Bank as primary, cards as secondary, PayPal as accessible but non-dominant tertiary.

Is Pay by Bank secure for UK shoppers?

Yes. Every Pay by Bank transaction is authenticated within the customer's own banking app using their existing banking credentials — biometrics, PIN, or bank login. No card credentials are shared with the merchant. The authentication meets the Strong Customer Authentication (SCA) standard required under UK regulation and is at least as secure as card-based payment.

Can Pay by Bank payments be charged back?

No. Pay by Bank transactions don't go through card networks, so the card chargeback mechanism doesn't apply. Disputes between merchants and customers are handled directly between the parties, without card network arbitration, fees, or timelines.

Why are Pay by Bank fees so much lower than PayPal?

PayPal's fee structure includes a percentage of transaction value plus a fixed fee, cross-border markups, currency conversion spreads, and chargeback fees — all of which reflect the cost of card network infrastructure and platform services. Pay by Bank uses direct bank-to-bank transfer through open banking rails, which has fundamentally lower infrastructure costs. The fee reflects the cost of the payment rather than the cost of platform services layered on top of it.

How quickly do Pay by Bank transactions settle?

Same-day or instantly. The funds transfer directly between bank accounts when the customer authorises the payment — there's no intermediary balance, no batching, and no risk-related hold.

Can PayPal freeze merchant funds?

Yes. PayPal holds merchant revenue in a PayPal balance before releasing it, which means it can apply rolling reserves, pause payouts, and restrict account access. Pay by Bank via Fena doesn't hold merchant funds in an intermediary balance — funds go directly to the merchant's bank account.

Does Pay by Bank work for recurring and subscription payments?

Pay by Bank is best suited to one-off payments. For automated recurring billing where the customer doesn't re-authenticate each payment, card-on-file or direct debit infrastructure is more appropriate. Variable Recurring Payments via open banking are in development in the UK and will extend this capability over time.

Which industries benefit most from Pay by Bank?

Categories where chargeback rates are elevated — digital goods, supplements, peptides, CBD, regulated products — gain the most from removing the chargeback mechanism. High-volume merchants benefit most from the fee saving. Merchants who have experienced PayPal account holds benefit most from the account stability improvement. In practice, most UK Shopify merchants processing meaningful domestic volume benefit from adding Pay by Bank.