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For many merchants, payments are still treated as a procurement exercise. Negotiate a rate with an acquirer, connect a gateway, and review it again in a few years or ignore it.
However, the reality is that payments have evolved into something far more complex. New payment technologies, regulatory changes, and shifting customer behaviours mean that payment infrastructure is increasingly becoming a strategic component of business performance rather than simply a processing cost.
For merchants processing significant transaction volumes, the structure of their payments ecosystem can influence profitability, customer experience, competitive advantage and long-term flexibility.
This shift is leading many businesses to rethink how a modern payments eco-system should actually be designed, implemented and managed.
The Traditional Card Payments Model
For decades, most merchant payments have been processed through traditional card networks such as Visa, Mastercard and American Express.
This system has proven remarkably effective as it provides global acceptance, standardised security/fraud protections, structured dispute/chargeback processes and consumer credit functionality through issuing banks.
The result is a payment model that customers trust and merchants rely on.
However, this system also introduces several complex and structural cost layers. Interchange (paid to issuing banks), Scheme Fees (paid to card networks) and Acquirer Margin/Processing Fees (paid to payment providers).
For merchants, these combined layers typically result in effective payment costs up to 3% of transaction value, depending on the payment mix and industry sector.
While this model has supported global commerce for decades, it also creates a system where merchants have relatively limited control over the underlying payment rails.
The Emergence of Alternative Payment Rails
In recent years, open banking technology has introduced a new category of payment methods: Pay-by-Bank.
Providers such as TrueLayer, Plaid, Tink, GoCardless and Yapily (amongst others) allow customers to authorise payments directly from their bank account using their banking app.
Unlike card payments, these transactions move directly between bank accounts, bypassing card networks entirely.
From a merchant perspective, this introduces several advantages:
- Significantly lower transaction costs
- Faster or instant settlement
- Reduced exposure to chargebacks
- Greater transparency over payment flows
Introducing Pay-by-Bank reduces a merchant’s dependence on traditional card rails, enabling greater control over payment routing and cost structures. This flexibility allows businesses to take a more dynamic approach to managing their payments ecosystem and optimising transaction costs.
However, alternative payment rails also raise important considerations.
The Role of Customer Protection
One of the key reasons card payments have remained dominant is the level of protection they provide consumers.
Card networks operate global dispute frameworks that allow customers to raise chargebacks for issues such as:
- Fraud
- Goods not received
- Services not delivered as described
- Duplicate or incorrect transactions
In addition, credit cards often provide statutory protections such as those under the Consumer Credit Act 1975 and these protections play a critical role in customer trust.
By contrast, open banking payments currently operate differently. Once a payment has been authorised by the customer through their bank, the transaction is typically immediate and irreversible through a scheme dispute process.
While customers remain protected against unauthorised fraud under regulations such as the Payment Services Regulations 2017, the broader dispute framework that exists for card payments does not currently exist at the same scale for open banking transactions.
This difference highlights an important reality that payment infrastructure is not just about moving money, it is also about managing risk and trust.
Payments Optimisation: A Strategic Perspective
Rather than viewing payment methods as competitors, many merchants are starting to think in terms of payments optimisation and future proofing for changing habits. This involves designing a payment ecosystem that balances several objectives simultaneously:
Cost Efficiency
Alternative payment methods such as open banking can significantly reduce processing costs for certain transaction types. However, cost optimisation is not simply about replacing cards. It is about introducing the right mix of payment options to reduce the effective blended cost of payments.
Revenue and Conversion
Payment friction directly affects revenue and limited payment options, poor acceptance rates, or unnecessary authentication steps can reduce checkout conversion.
An optimised payments ecosystem should prioritise high authorisation rates, smooth checkout experiences and dynamic support for preferred payment methods. In many cases, improving overall payment performance can generate more financial impact than reducing fees alone.
Ecosystem Flexibility
The payments landscape continues to evolve rapidly. New payment technologies, regulatory developments, and consumer behaviours will continue to reshape how transactions are processed.
Merchants that build flexible payment infrastructure today will be better positioned to adapt to future changes.
This means designing payment ecosystems that allow businesses to:
- integrate new payment methods quickly
- adjust payment routing strategies
- expand into new markets without structural limitations
Looking Ahead: The Future of Open Banking Payments
Open banking payments are still in an early stage of adoption, but their long-term potential could extend far beyond simple bank transfers.
It is possible to imagine a future where consumers manage both debit and credit functionality directly within their banking environment.
In such a model, a customer could choose at the point of payment whether a transaction is:
- paid immediately from their balance
- financed as credit
- split into instalments
- deferred as a pay-later option
All of these payment choices could be managed within the consumer’s banking app, rather than being distributed across separate card products and payment providers.
For this model to compete fully with card networks, however, two additional layers would need to evolve alongside the payment rail itself.
First, consumer protection frameworks would need to be replicated or replaced. This could potentially be delivered by banks themselves or by specialist third-party providers who underwrite dispute protection and purchase guarantees.
Second, credit distribution would need to be integrated directly into the banking layer, allowing consumers to access credit at the point of payment without relying on traditional card products.
In this scenario, the underlying payment rail would operate through open banking infrastructure, while liability protection and credit functionality could be provided either by banks or by specialised financial providers.
If realised at scale, this model could combine the cost efficiency of bank payments with the trust and protection currently associated with card networks, fundamentally reshaping the payments ecosystem over time.
The Strategic Opportunity for Merchants
While the future of payments will continue to evolve, one thing is already clear.
Payments should no longer be viewed purely as a processing function.
They are part of a broader commercial ecosystem that influences cost, revenue performance, and customer experience.
Merchants that begin to treat payments as a strategic infrastructure decision rather than a procurement exercise will be far better positioned to adapt to the changing landscape.
Because the real opportunity in payments is not simply reducing costs.
It is designing the right ecosystem for the future. discipline, BNPL can continue to support growth while sitting comfortably within financial governance.