Card payments were built for reach, not for every risk profile. That becomes clear when a merchant faces rolling reserves, delayed settlements, high decline rates, or sudden account reviews. For sectors labelled “high risk”, the payment rail can become as important as the product itself.
Open banking changes the starting point. Instead of moving money through card schemes, it lets customers pay directly from their bank account through a regulated connection. In the UK, this sits within a framework shaped by the Competition and Markets Authority open banking reforms and the Payment Services Regulations, which brought PSD2 into UK law.
That does not make risk disappear. It does give merchants another way to collect payments, verify account ownership, reduce some card-related costs, and build a clearer audit trail.
Bank-to-bank payments can give high-risk merchants another route when card acceptance becomes difficult.
Why high risk merchants struggle with traditional payment processing
“High risk” does not always mean suspicious. It usually means the business sits in a category where processors expect higher dispute levels, regulatory scrutiny, refund exposure, or reputational risk.
Common examples include:
- Travel and ticketing, where fulfilment may happen weeks or months after payment
- Subscription products, especially where customers forget recurring billing dates
- Digital goods, where delivery is instant and disputes can be hard to evidence
- Adult, gaming, crypto-related, nutraceutical, and CBD sectors, where rules vary by region and provider policy
- Marketplaces, where the merchant may not fully control the end seller or service
Card acquirers and payment processors manage this by pricing for risk. They may charge higher fees, hold a reserve, delay settlement, cap monthly volume, or refuse certain categories altogether. These controls are not arbitrary. Card schemes have dispute rules, fraud monitoring programmes, and compliance expectations that acquirers must manage.
The issue for merchants is that the controls can become commercially painful. A reserve can strain cash flow. Declines can cut conversion. A processor exit can stop sales with little warning.
For businesses comparing high risk payment processing options, the practical question is whether bank-to-bank payments can sit beside card acquiring as a high risk payment solution, or reduce reliance on a single high risk payment provider.
How open banking payments work
Open banking payments use an authorised third party to initiate a payment from the customer’s bank account. The customer chooses their bank, authenticates with their bank, checks the amount and payee, then approves the payment. Funds move by account-to-account rails, often using Faster Payments in the UK.
The merchant never sees the customer’s online banking credentials. The bank handles authentication. The open banking provider passes payment instructions and status messages through secure APIs.
A typical checkout flow looks like this:
- The customer selects “Pay by bank” at checkout.
- The payment provider creates a payment request for the exact amount.
- The customer chooses their bank.
- The customer authenticates in their banking app or online banking.
- The customer approves the payment.
- The merchant receives confirmation and can fulfil based on its risk rules.
This matters because the payment is customer-authenticated at the bank. Strong Customer Authentication is built into the process in most cases. That can reduce certain types of unauthorised payment fraud compared with manually entered card details.
Open banking payment solutions also remove parts of the card chain. There is no card number to store, no card expiry date to fail, and no card scheme interchange model in the same form. Pricing varies by provider, but the cost base is different from card acquiring.
Customers approve open banking payments inside their own bank flow.
Where open banking helps high risk payment processing
Open banking is not a universal replacement for cards. It works best where the payment problem matches the strengths of account-to-account transfer.
It can cut exposure to card chargebacks
Card chargebacks are a major pain point for high risk merchants. They can arise from fraud, non-delivery claims, subscription disputes, or customers not recognising a descriptor.
Open banking payments do not run through card scheme chargeback systems. That removes one type of dispute process. A customer cannot raise a Visa or Mastercard chargeback for a bank-to-bank payment because the card schemes are not involved.
That does not mean payments are impossible to dispute. Customers may still contact their bank, raise fraud concerns, or pursue consumer rights routes. In the UK, authorised push payment fraud rules and reimbursement expectations have become more prominent. Merchants still need clear consent records, refund policies, and fulfilment evidence.
The difference is the dispute framework. For some high risk merchants, moving part of the volume away from card chargebacks can make processing more stable.
It can improve payment acceptance where cards are fragile
High risk merchants often face higher card decline rates. Some declines come from fraud tools, issuer risk scoring, expired cards, insufficient funds, or customer authentication failures.
A pay-by-bank flow avoids card data entry and routes the customer through their bank. If the customer has funds and approves the payment, the transaction can complete without card authorisation. For sectors where card issuers are cautious, this can offer a useful second route.
A simple example is a subscription business. Failed card renewals can happen because a card expired or was replaced. With open banking, the customer can initiate a fresh bank payment without updating card credentials.
For recurring payments, variable recurring payments are also relevant. In the UK, VRPs are established for “sweeping”, such as moving money between accounts owned by the same person. Commercial VRPs for broader recurring merchant payments are still developing. Merchants should check what a provider can legally and practically support before building a billing model around it.
It can support faster settlement and cash flow
Open banking payments in the UK often use Faster Payments, which can settle quickly. Actual merchant access to funds depends on the provider, bank, risk controls, and reconciliation process.
For high risk merchants, the important point is not just speed. It is predictability. If a card acquirer holds a rolling reserve, cash may be tied up for months. A bank-to-bank model may offer different settlement terms, though providers can still apply controls for risky sectors.
A merchant should ask:
- When are funds available?
- Are reserves applied?
- Can settlement be delayed after risk review?
- How are refunds funded?
- What happens if a payment is reported as fraudulent?
The answers matter more than the headline claim of “instant payments”.
What open banking does not solve
Open banking reduces some card-related problems, but it does not remove the need for underwriting, monitoring, compliance, and customer protection.
It does not make prohibited activity acceptable
A payment method cannot turn an unsupported business into a supported one. Providers still screen merchants against law, regulation, banking partner rules, and internal policy.
In the UK, checks may include:
- Company identity and beneficial ownership
- Product or service category
- Licensing or age restriction requirements where relevant
- Terms and refund policy
- Website content and customer journey
- Expected transaction values and volumes
- Geographic exposure
A merchant in a regulated sector may still need proof of licences, clear disclosures, and monitoring controls.
It does not remove fraud risk
Bank authentication helps, but fraud can still occur. A customer may be manipulated into approving a payment. A fraudster may use a compromised bank account. A bad actor may exploit refund processes or mule accounts.
Open banking providers and merchants still need fraud controls, such as:
- Device and behavioural checks
- Account name matching where available
- Transaction velocity rules
- Risk-based manual review
- Clear audit logs
- Refund controls tied to the original payer where possible
Confirmation of Payee also plays a role in the UK banking system by helping payers check the account name they are sending money to. It is not a complete fraud shield, but it can reduce misdirected payments and some impersonation risks.
It may affect conversion in some sectors
Customers know cards. They understand card refunds, rewards, and buyer protection. Some may hesitate when asked to pay from their bank account, especially for a new merchant.
The way the payment option is presented matters. Clear wording such as “Pay securely from your bank app” performs better than technical labels. The customer should know:
- The amount
- The merchant name
- The bank they are connecting to
- That credentials are not shared with the merchant
- How refunds work
Trust is part of conversion. High risk sectors cannot afford confusing checkout design.
Clear records help merchants manage disputes and refunds after bank payments.
How to assess an open banking provider for high risk use
Not every provider will support high risk merchants. Some focus on low-risk retail, account verification, or enterprise use cases. The right provider depends on sector, volume, geography, refund needs, and compliance requirements.
A practical assessment should cover more than API documentation.
| Area to check | Why it matters |
| Sector acceptance | Some providers exclude categories before underwriting begins. |
| UK bank coverage | Payment success depends on the banks your customers use. |
| Settlement model | Direct settlement, pooled accounts, and payout timing affect cash flow. |
| Refund handling | Customers expect clear and fast refunds, especially in dispute-prone sectors. |
| Fraud tools | High risk merchants need more than basic payment initiation. |
| Reporting | Reconciliation needs payment status, references, refunds, and failed attempts. |
| Customer experience | A poor bank redirect flow can reduce conversion. |
| Compliance support | Regulated sectors need evidence, audit trails, and clear responsibilities. |
The strongest providers are clear about limitations. Be cautious with any provider that claims open banking eliminates fraud, guarantees acceptance, or removes all disputes. Bank payments are powerful, but they still operate inside real regulatory and operational constraints.
Best use cases for high risk merchants
Open banking tends to work best when the payment is intentional, higher value, or linked to a clear customer action.
Good fits can include:
- Account top-ups
Customers fund a wallet or account directly from their bank. - High-value purchases
Bank payment avoids some card limits and card decline issues.
- Invoice settlement
The customer approves an exact payment amount with a clear reference. - Repeat customer payments
Returning customers may trust pay-by-bank once the first experience works. - Backup payment route
Merchants can offer open banking when card payments fail or when card acceptance is restricted.
Riskier fits include impulse purchases from unknown merchants, sectors with very high refund rates, and recurring billing models that need fully mature variable payment mandates. In those cases, open banking may still help, but it should sit within a wider payment mix.
Building a sensible payment mix
High risk merchants often need more than one payment rail. A resilient setup may include cards, open banking, bank transfers, local payment methods, and careful manual review for edge cases.
The goal is not to replace cards everywhere. Cards still offer global reach, familiar checkout behaviour, and established consumer protections. Open banking adds a different set of strengths.
A balanced setup might work like this:
- Offer card payments for customers who prefer them and where acceptance is stable.
- Offer pay-by-bank for higher-value orders or account funding.
- Route failed card payments to open banking as a recovery option.
- Use account verification before withdrawals, refunds, or marketplace payouts.
- Monitor payment performance by sector, bank, device, and transaction type.
This gives the merchant options when one rail becomes expensive or unreliable.
It also supports better risk decisions. If a customer pays from a verified bank account, uses a consistent device, and has a clean refund history, that profile may carry less risk than a first-time card payment with mismatched details. The payment method is only one signal, but it can be a useful one.
A mixed payment setup gives high-risk merchants more ways to accept legitimate orders.
The compliance questions to answer early
Open banking sits within a regulated payments environment. In the UK, firms providing account information or payment initiation services need the right authorisation or registration, unless they operate through an authorised partner.
Merchants should clarify the legal and operational chain before launch:
- Who is the regulated payment initiation service provider?
- Who holds customer funds, if anyone?
- Are funds settled directly to the merchant or via the provider?
- What customer disclosures appear during checkout?
- How are refunds processed?
- What records are kept for consent and authorisation?
- What happens if a customer claims they did not authorise a payment?
- Which countries and banks are supported?
This is especially important for nationwide businesses that trade across the UK but may also receive orders from abroad. Open banking coverage and rules vary by market. A checkout flow that works well for UK bank customers may not work the same way across Europe or beyond.
This article is informational only and is not legal, financial, or regulatory advice. Merchants should take specialist advice before changing payment flows in regulated or high-risk sectors.
What good implementation looks like
A strong rollout starts small. Rather than switching all volume at once, test open banking on a defined payment journey.
For example, a merchant might begin with invoice payments or account top-ups. These use cases usually give the customer more time to understand the payment and reduce the pressure of a fast retail checkout.
Success should be measured with practical metrics:
- Payment completion rate
- Failed payment reasons
- Settlement timing
- Refund volume
- Customer support contacts
- Fraud reports
- Dispute volume against comparable card payments
- Repeat use by the same customers
Customer support teams also need clear scripts. If a customer asks, “Where is my refund?” or “Why did my bank app open?”, the answer should be simple and consistent.
A good pay-by-bank journey feels familiar, safe, and specific. The customer sees the amount, approves inside their bank, and receives confirmation. The merchant receives a usable payment status and can reconcile the transaction without manual chasing.
The real value of open banking for high risk payments
Open banking is not a shortcut around risk. It is a different payment rail with different controls, economics, and customer behaviour.
For high risk merchants, its value is practical. It can reduce dependence on card acquiring, lower exposure to card chargebacks, support faster bank-based payment confirmation, and add useful verification data. It can also improve resilience when card approvals become unpredictable.
The strongest results come when merchants treat open banking as part of a payment strategy, not a magic fix. Choose providers that understand the sector. Test the customer journey. Keep refund rules clear. Track fraud and support data from the start.
High risk payment processing will always require scrutiny. The better question is whether every transaction needs to carry card risk as well. For many merchants, pay-by-bank gives a useful answer.