Why competing Pay by Bank schemes could fragment UK payments

The UK Payments Initiative (UKPI) launched the country's first commercial scheme for variable recurring payments (VRPs) on 2 June 2026, giving banks, payment providers and merchants a rulebook for taking recurring money directly from a customer's bank account using open banking. The Financial Conduct Authority (FCA) has said explicitly that it wants more schemes like it to follow.

That combination matters for anyone who takes or makes recurring payments in the UK: merchants weighing up Pay by Bank as an alternative to Direct Debit or cards, payment service providers deciding which rulebooks to support, and consumers who will eventually be asked to authorise these payments from their current account. If several commercial schemes end up competing in parallel, each with its own technical quirks, fees and dispute rules, providers and merchants could face the cost of supporting more than one rulebook to reach the same customers - the opposite of what open banking's shared technical foundations were built to deliver.

This is a live design question, not a current crisis. UKPI is the only UK commercial VRP scheme verified as launched by 4 October 2026; its announcement describes a move into market rollout after live proving, but bank coverage, implementation and merchant-scale transaction volumes aren't established from public material. The architecture being built through 2026 and 2027 will decide whether scheme competition stays confined to price and service, or spills into the plumbing that makes a recurring bank payment work at all.

What "Pay by Bank" actually means

"Pay by Bank" is a market term for account-to-account payments initiated through open-banking interfaces. It is not itself a designated UK payment system or a single statutory scheme. Three layers sit underneath it:

• The payment rail - Faster Payments, the system that moves the money.
• The statutory access layer - rights under the Payment Services Regulations 2017 (effective 13 January 2018, implementing the EU's second Payment Services Directive before the UK left the EU) and the Competition and Markets Authority's (CMA) Retail Banking Market Investigation Order 2017, which requires the UK's nine largest retail banking groups to provide standardised application programming interfaces (APIs) and fund the central open-banking standards body.
• The commercial scheme layer - rulebooks, like UKPI's, that go beyond the CMA-mandated minimum to cover commercial use cases, pricing, dispute handling and merchant onboarding.

A variable recurring payment lets a customer authorise a payment initiation provider to take a series of payments within agreed limits - an amount ceiling, a frequency, an expiry date. Strong customer authentication applies when that consent is set up; individual payments made under it don't each need fresh authentication. Sweeping VRPs move money between accounts belonging to the same person and are already covered by the CMA-mandated access. Commercial VRPs extend recurring initiation to payments involving a business or other third party, and that's where competing commercial schemes come in.

Why recurring payments raise the stakes

A one-off open-banking payment is a single transaction: authorise it, send it, done. A recurring commercial arrangement depends on a standing mandate being interpreted consistently every time a payment is taken, on the customer being able to see, amend or cancel it, and on a bank being reachable by the provider at all. If a scheme can't connect a critical mass of UK current accounts, it isn't a practical option for a merchant serving customers across different banks. HM Treasury's Modernising Payment Services Regulation consultation, published 20 July 2026, was still considering a statutory VRP access right because voluntary bank participation might not deliver sufficient reach. It did not propose forcing banks into any particular commercial scheme, only into providing underlying access - leaving open the possibility that coverage differs scheme by scheme.

Where costs could multiply

Token.io chief executive Todd Clyde argued, in an Open Banking Expo piece published 1 October 2026, that providers may need to support different APIs, functionality, dispute frameworks and commercial terms for each commercial scheme they connect to. That claim should be read with its source in mind: Token.io is a UKPI founding shareholder, sells payment infrastructure that would sit between providers and multiple schemes, and the article doubled as promotion for an event where Token.io was headline partner.

The FCA's own architecture corroborates the underlying risk without endorsing that specific scenario: it assigns common minimum standards and interoperability to a central standards body because, without them, commercial schemes could otherwise diverge on the detail Clyde describes. No independent, published UK estimate of the cost of integrating with two or more commercial VRP schemes was found for this article - the direction of the risk is well supported, its scale is not quantified.

It's also worth being precise about what exists today: the FCA expects UKPI to catalyse other initiatives, not that a second UK scheme is already live. Commentary that groups UK and European schemes - such as giroAPI, SPAA and S-Payments - together risks implying several schemes are already fragmenting the UK market specifically; those are separate national or EU arrangements, and the domestic risk remains prospective rather than observed.

UKPI's commercial terms, and an open competition-law question

UKPI's first phase covers payments to government, regulated utilities, charities and financial services, with subscriptions and e-commerce planned for later. The scheme announced 23 founding shareholders at launch, a figure that differs from the FCA's December 2025 statement that UKPI was being formed by 31 firms; the two counts may capture different categories of participant, such as founders versus funders, and shouldn't be treated as interchangeable.

UKPI's Phase 1 access fee is intended to be set centrally by an independent pricing committee, with participants free to join alternative commercial VRP schemes. The FCA and Payment Systems Regulator (PSR) said on 20 January 2026 that they would temporarily not prioritise a Competition Act investigation into that fee model - narrower than approval: the regulators explicitly did not decide whether the arrangement complies with competition law, and the stance runs only until a new legislative framework takes effect or July 2027, whichever is sooner. Forecasts in that document, from Frontier Economics' April 2025 analysis, put Wave 1 uptake at around 1.2% of the addressable recurring-payments market by year five and about 3.4% by year ten.

The wider market is growing: the FCA reported more than 16 million UK open-banking users and 53% year-on-year payment growth in 2025, with VRPs representing 16% of open-banking transactions in its December 2025 snapshot - a figure likely dominated by sweeping activity between a customer's own accounts, not commercial merchant payments.

The protection gap

Scheme competition creates a genuine tension here. The FCA's design document (FS25/4, published 8 August 2025) wants commercial schemes to compete on price, consumer experience, redress mechanisms, merchant services and additional use cases. Schemes may differentiate their redress arrangements above whatever legal protections already apply, but how much any future mandatory common dispute baseline will require remains unsettled: HM Treasury's July 2026 consultation was still considering powers to impose common open-banking dispute processes.

The base legal protection does not disappear in the meantime. The Payment Services Regulations' liability framework covers unauthorised VRP transactions, and Open Banking Limited's VRP proposition notes that multilateral scheme contracts can standardise liability further. Customers of regulated payment initiation providers can generally access complaints processes and the Financial Ombudsman Service. None of this is equivalent to the Direct Debit Guarantee, card chargeback, or Consumer Credit Act section 75 protection - and whether UKPI's own safeguards close that gap for its participants has not been established, since its detailed rulebook was not available for this article.

The FCA's Financial Services Consumer Panel, in its 2024/25 annual report (published 17 July 2025), identified weak dispute resolution and limited fraud protection as current risks in open-banking payments generally, and said protection there is lower than for some other payment methods. Separately, £243m was reimbursed to victims under the UK's mandatory authorised push payment scam reimbursement regime by the end of 2025, according to the PSR - a figure about fraud reimbursement across payment systems generally, not about how a dispute over undelivered goods or a mismatched mandate under a commercial VRP would be resolved.

The FCA's own consumer guidance on making and receiving payments sets out the statutory rights that apply when a payment is unauthorised or incorrectly executed. It does not itself detail the additional contractual refund, cancellation and dispute terms that a specific provider or commercial scheme may offer on top of those rights, which is why those terms cannot be assumed to match a Direct Debit or a card payment, and why the FCA's guidance is the starting point rather than any single provider's or scheme's own account of its protections.

The shared-layer answer the FCA is building

The FCA's proposed architecture tries to separate the two problems. A central "Future Entity" would hold responsibility for common minimum standards, performance monitoring, certification and interoperability. Commercial schemes would then compete above that layer on price, service, use cases and, within limits still being worked out, redress. HM Treasury's July 2026 consultation proposed giving the FCA powers to require common interfaces and standards, regulate commercial pricing, require information sharing and impose common open-banking dispute processes - powers that, as of 4 October 2026, do not yet exist in force.

The government's Payments Forward Plan had originally targeted live VRPs for the first quarter of 2026; UKPI's public launch came on 2 June 2026, after a period of live proving. Whether restricted proving met that original milestone isn't established from the public record; what's clear is that the framework meant to keep future competing schemes aligned on a common technical floor isn't yet legally in place.

What an intermediary can and can't fix

Clyde's proposed solution - a unified infrastructure layer abstracting multiple schemes behind a single connection - is technically plausible and consistent with what aggregators generally do: translate between interfaces so a merchant doesn't rebuild its integration for every rulebook.

It would not, by itself, solve the problems set out above. An aggregator can't grant itself bank coverage a scheme doesn't have; it can only connect to what exists. It can't harmonise legal protections across schemes with genuinely different liability and dispute terms; it can only pass through whichever terms apply. Nor does it set prices or access fees, which remain a matter for each commercial scheme and, prospectively, for FCA oversight. The FCA's own design assigns minimum standards and interoperability to the central Future Entity, not to commercial infrastructure vendors - a different answer to the same problem than Clyde proposes. A market that solves scheme fragmentation by routing everything through a small number of aggregators would be worth watching for a different kind of concentration risk.

What to watch next

The questions that will determine whether this stays a manageable competitive market or becomes a costly multi-rulebook problem are mostly still open: publication of UKPI's full rulebook and pricing detail, evidence of its actual bank coverage and transaction volumes, whether a second UK commercial scheme emerges, and whether the Data (Use and Access) Act statutory instrument and the FCA's interface rules arrive on schedule. Readers who want the primary detail as it's published should go to the FCA's open banking pages and HM Treasury's payments consultations directly, rather than to any single scheme's or vendor's own account of its merits.