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Shoppers are being urged to consider what protections apply when choosing how to pay, as “pay by bank” options become more common at checkouts. Pay by bank allows customers to make quick, secure payments directly from their bank account, often without entering the recipient’s details or using a card.
While many people use pay by bank to settle bills or credit card balances, it is becoming increasingly available for retail purchases. However, consumer group Which? has warned that shoppers may not realise pay by bank does not offer the same protections as credit or debit cards if something goes wrong with a purchase. Which? said that the option lacks the Section 75 and chargeback protections that people may have when using some other payment methods.
Jenny Ross, Which? Money editor said: “Innovations like pay by bank present opportunities for businesses and consumers alike, but they’re not without risk, particularly as they lack the rigorous purchase protections you get when paying by card.”
Under Section 75 of the Consumer Credit Act, credit card companies are jointly and severally liable with retailers if a purchase turns out to be faulty or does not arrive, provided the item costs over £100 and up to £30,000.
This means that if a retailer fails to deliver or goes out of business, shoppers can seek a refund directly from their credit card provider, even if only part of the payment was made on the card.
Debit and credit card users may also benefit from the voluntary chargeback scheme, which allows them to reclaim funds if something goes wrong, though this is not a legal right like Section 75.
According to Which?, pay by bank is a “potential game changer” for businesses, as it allows them to avoid card transaction fees and receive customer funds instantly. For consumers, pay by bank offers the appeal of instant refunds and greater security, as card details are not shared during transactions.
However, Which? warns that pay by bank does not provide the same protections as credit cards. While all shoppers have rights under the Consumer Rights Act, which requires goods to be as described, fit for purpose, and of satisfactory quality, enforcing these rights is not always easy.
Particular concerns arise if a business goes bust, especially for future-dated purchases like flights, festivals, or expensive household items. In such scenarios, consumers paying by bank transfer may find it much harder to recover their money compared to those using credit cards, which are protected by Section 75.
Ms Ross continued: “We’re calling on the regulator to act to ensure consumers can use pay by bank with confidence, but in the meantime, we’d urge consumers to think carefully before using it to book events or make substantial purchases – for now, your good old-fashioned credit or debit card may be the best option.”
A spokesperson for banking and finance industry body UK Finance said: “There are a range of options for making payments online which provides customers with choice as to how they wish to pay. Different payment methods do come with different levels of protection and it’s worth being aware of these when shopping online, particularly when making higher value purchases.”
Riccardo Tordera-Ricchi, director of policy and government relations at the Payments Association, said: “Pay by bank offers real advantages – from lower merchant fees to faster settlement and improved security through reduced reliance on card details. But as it becomes more widely used, especially for high-value or future-dated purchases, it’s essential that consumers understand the protections associated with different payment methods.
“As payment options diversify, making informed choices is just as important as the technology behind them.”
Mr Tordera-Ricchi described Section 75 as “a powerful example of how regulatory frameworks can meaningfully protect consumers”.
Tom Burton, director of external affairs and public policy at bank payment company GoCardless, said: “Open banking payments are good news for British consumers: they offer bank-grade security measures, instant refunds, reduced fraud risk and, crucially, small businesses that use them don’t face the same high fees as they do for card acceptance. Lower merchant costs mean shoppers get cheaper prices – a real win-win.”
However, he pointed out: “There is more to do, though, if open banking is to genuinely compete with cards, including building on the foundations of the consumer protections that are already in place.
GoCardless is working hard to make that a reality for consumers and merchants by closely collaborating with the Government, regulators and others.”
