Open banking was supposed to give merchants a cheaper alternative to cards. Lower fees, no chargebacks, money in your account in seconds. For anyone below a certain volume it mostly has not arrived, and the reason is arithmetic rather than bad intentions.
The pitch is genuinely good. A payment initiated directly from the customer's bank account skips the card networks entirely. No interchange, no scheme fees, no acquirer margin. No chargebacks, because there is no card to dispute. Settlement in seconds rather than days. For a business running thin margins on high volume, the difference between roughly 1.5% on cards and a flat fee measured in pence is not a rounding error - it is the margin.
Regulation made it technically possible. Banks were required to expose account and payment initiation APIs, and a licensing regime was created for the firms that would use them. On paper the infrastructure is open, standardised and available.
You cannot initiate a payment from someone else's bank account without authorisation. In the UK that means FCA authorisation as a payment initiation service provider, and it is a real process: an application, capital requirements, a compliance function, safeguarding obligations, ongoing supervision and annual fees. Realistically it is six to twelve months and a five-figure sum before you process a penny, and that is if it goes smoothly.
That is not an unreasonable bar. Payment initiation touches customer bank accounts directly, and the licensing exists for good reason. But it does mean that for almost every merchant, open banking is not something you adopt - it is something you buy from a firm that has already done the licensing.
Which puts you on the other side of an underwriting decision.
Here is where it stops being about regulation and starts being about unit economics.
An authorised provider earns pence per transaction. That is the whole point of the product - it undercuts cards. But the cost of taking on a merchant is largely fixed: due diligence, onboarding, integration support, ongoing monitoring, and a share of the compliance function that exists whether they have ten customers or ten thousand. Those costs are roughly the same whether you process ten thousand pounds a month or ten million.
At pence per transaction, a small merchant may never recover their own onboarding cost. So the market does what markets do: it routes around them. Minimum volume commitments appear. Onboarding for smaller merchants gets deprioritised, or quoted at a level that erases the cost advantage that made open banking interesting in the first place.
The uncomfortable version: the merchants with the most to gain from cheaper payments are the ones the economics make hardest to serve.
None of that requires anyone to be acting badly. It is what happens when a low-margin product carries a high fixed cost of acquisition. It is worth understanding as structure rather than taking personally, because it tells you what to do about it.
The experience of trying to buy open banking as a smaller merchant is recognisable, and most of it follows from the above:
Be direct about your volume in the first conversation. You will be assessed on it regardless, and understating it wastes weeks that end in a decline. Providers who will serve you at your size exist, and finding them quickly is worth more than a slightly better rate from one who will not.
Ask for everything itemised, in writing. Per transaction, monthly minimum, settlement timing, failed payment handling, refund cost, sandbox access, support response times. A provider willing to put that in a document is telling you something useful about how the relationship will run.
Do not build to one provider's API. This is the one that costs the most to get wrong. If open banking is wired directly into your checkout, then changing provider - or adding a second - is a rebuild rather than a configuration change. Put an abstraction between your application and the provider on day one, even with only one integration behind it. Every migration we have been called in to do would have been a fraction of the work if that layer had existed.
Treat it as a supplement, not a replacement. Cards are not going away, and a checkout that only offers bank transfer will convert worse. Run open banking alongside cards, route the customers who prefer it, and let the volume build until the economics open up better pricing.
Check your device split before you model the saving. On mobile the flow is genuinely good, often better than typing a card, because the redirect hands off to the banking app and the customer approves biometrically. On desktop there is no app to hand off to, so it becomes a QR code and a second device, or a full bank login in the browser. Desktop skews to higher-value and B2B orders, which means the friction is worst on exactly the transactions where the saving is largest.
Open banking is real, and it does what it says once you have access. The gap is not technical and it is not regulatory bad faith. It is that a product priced in pence cannot easily carry the fixed cost of onboarding a small merchant, and the market has adjusted accordingly.
The practical response is to build so that provider choice stays cheap. Volume grows, terms improve, and providers who would not take you last year will take you next year. The businesses that benefit when that happens are the ones who can switch in an afternoon.
We build and migrate payment layers, including multi-provider routing that keeps switching costs low. If you are weighing open banking against cards, or stuck behind an onboarding decision, we are happy to give you a straight view.