Pay by Bank is getting an upgrade. New features, including recurring payments, are being unlocked through UK Payments Initiative, a scheme designed to balance commercial incentives by ensuring banks are paid for the part they play in Pay by Bank.

The availability of recurring payments in Pay By Bank is being unlocked in waves. Wave 1 is already live; consumers can now make recurring payments directly from their bank for utility bills, government services, investments, pensions and social housing.

As UKPI prepares for wave 2, which will enable consumers to put their 'Bank on File' for e-commerce, such as one-click checkout, subscriptions and in-store retail — a key design question is how Pay by Bank issues should be dealt with.

Today’s Pay by Bank has a clear framework. Consumers can get a refund from their bank in the event of unauthorised or scam payments; and a refund from their merchant in event of issues with goods and services — the same set-up as UK Direct Debit.

Sources: Visa, CIFAS, IMRG, emerchantpay, Xero

It is different to cards, where consumers can escalate goods and service issues to their bank in a so-called chargeback. It is different for a reason.

Pay by Bank payments are push payments, unlike cards which are pull payments.

With Pay by Bank the consumer provides consent up-front to send money to a merchant and authorises the specific amount directly with their bank. No payment details are shared with the merchant.

Cards work differently. Merchants are provided with the 'keys’ to a consumer’s account (the long card details) and can use them to pull money out of it. This has led to high levels of unauthorised transactions — where those keys have been lost or stolen and then used to purchase items fraudulently (there were £594.9m in losses due to unauthorised card payments in 2025 according to UK Finance).

This is why card schemes developed chargebacks in the first place: to provide protection to consumers whose credit cards were stolen or whose payments were processed incorrectly (both examples of unauthorised payments).

But today chargebacks have evolved. They are also used to dispute correctly authorised transactions. This way of using chargebacks can be legitimate where the cardholder has issues with the goods and services purchased and has not been satisfied with a merchant’s response. However, many chargebacks today are made when the merchant is not at fault. This can involve cardholders acting maliciously (first-party fraud’), using chargebacks to get free products or refunds, or due to buyer’s remorse, non-compliance with return policies, or simply failing to recognise a transaction on a statement.

Increasingly the data shows us that chargebacks are leading to high costs for merchants, an epidemic of first-party fraud and merchant disempowerment:

This brings us back to the key design question for Pay by Bank, as UKPI looks to unlock Bank on File for general ecommerce and beyond. Should the consumer have recourse to their bank (to chargebacks) for issues with goods or services?

Let’s take the three sets of issues associated with the card set-up in turn:

Costs for merchants

Pay by Bank has seen strong UK growth since it was introduced in 2018. There are 40m payments per month, and that’s counting only the nine UK banks required to report data.

The growth can be attributed to the fact that merchants are looking for less expensive alternatives to cards. Pay by Bank offers this because it is efficient, cutting out several of the intermediaries and processes in cards that cost merchants money, including chargebacks

Despite Pay by Bank’s growth, it is currently some way from achieving the scale of cards. Introducing any equivalent of chargeback would have both high up-front costs (building the systems processes to handle such disputes) and operating costs (extra staff, training, case handling). Without the economies of scale of cards, it is difficult to imagine that chargebacks could be introduced more efficiently. Pay by Bank would become a less cost effective option for merchants, which would seriously risk its ability to grow.

An epidemic of first party fraud

As already discussed, Pay by Bank is built differently to cards. It already eliminates much of the reason chargeback exists in the first place. With the increasing problem of first party fraud — exacerbated by the remote nature of ecommerce — it would be a poor design choice to build an equivalent process into Pay by Bank.

Can chargebacks be designed in a way that eliminates friendly fraud? Their very nature (the fact that a consumer escalates to their own bank) opens them up to abuse. Because the bank has the primary relationship with their consumer, and not with the merchant, the bank is incentivised to side with the consumer (or risk further escalation and complaint).

It is easy for a bank to decide in favour of a consumer, even when the facts of the case are unclear. It is very hard and expensive for a merchant to dispute a chargeback. For any transaction valued under £30–£50, the cost to gather evidence and file a challenge exceeds the value of the order itself. As a result, UK retailers automatically forfeit and write off the vast majority of smaller disputes. Opening up an avenue to dispute Pay by Bank purchases with the consumer’s bank would undoubtedly introduce the same vulnerability to abuse and negative drag on merchants.

Merchant disempowerment

In today’s highly competitive ecommerce world, it has never been easier to shop around and find the best deal, or the best merchant. Retailers compete aggressively to retain custom, and this is reflected in generous refund, return and money back guarantee policies.

In an era of intense ecommerce rivalry, stellar customer service is simply a hygiene factor for competing. Amazon, for example, answers calls within seconds and swiftly replaces faulty products, while Just Eat Takeaway issues quick refunds or credits for deliveries that are cold or late. To create an avenue for consumers to skip the merchant is to disempower merchants and erode the competition that is driving merchants to prize consumer satisfaction.

Starting with what works

If we are serious about providing an alternative, and different payment method in ecommerce, we need to maintain the very features and efficiencies that make Pay by Bank attractive to merchants. In fact UKPI can play an important role to make the current set-up of Pay by Bank even more efficient and effective. It is well positioned to develop more efficient communication between the different actors in the Pay by Bank payment chain. It also has a key role in keeping bad actors out of the payment system through scheme participation rules.

This is not an argument that we should do nothing. As Pay by Bank scales, helped by the new features UKPI is unlocking, we will have the space and economies of scale to consider further enhancements but putting the bank where the merchant should be is not the right starting point.