BNPL and Open Banking: Options for UK Businesses (2026)

BNPL and open banking payments for UK businesses: Klarna, Clearpay, FCA regulation, open banking costs vs cards, A2A payments, and Variable Recurring Payments.

Two payment methods are reshaping merchant choice beyond card processing: BNPL and open banking. BNPL aims to increase conversion and average order value on your higher-ticket items. Open banking aims to reduce your transaction costs by removing card networks from the equation entirely.

We cover how each works, what it costs, and when the economics make sense for your business. Both have real use cases — and real limitations that provider marketing tends to understate.

How BNPL Works for Merchants

BNPL providers pay you in full at the point of purchase. The provider then collects from the customer in instalments. You take no credit risk — that sits with the BNPL provider.

Klarna offers Pay in 3 (three equal interest-free payments over 60 days) and Pay in 30 days (full payment deferred one month). Clearpay splits into four equal interest-free instalments over six weeks.

If you use Shopify or WooCommerce, native Klarna and Clearpay apps are available. If you use Stripe, adding BNPL to your existing integration is a configuration change, not a separate build.

We recommend you test BNPL on a product-by-product basis rather than enabling it site-wide. The fee premium is material; it should only apply to the categories where the AOV uplift is demonstrable for your customers.

BNPL Costs, Order Value Uplifts, and When to Offer It

BNPL merchant fees run from 2% to 6% per transaction depending on provider and volume. Stripe card processing costs 1.5% + 20p for UK cards. The premium over card is 0.5–4.5 percentage points — material if your margins are low.

Klarna’s published merchant data suggests BNPL increases average order value by 20–45%. This is vendor-perspective data. Your actual uplift will vary significantly by product category, price point, and your customer segment. We treat this as a directional signal, not a guaranteed outcome.

The calculation is straightforward: your extra 1–3% in transaction fees must be offset by a meaningful AOV increase. For a £200 order in fashion or electronics, a 30% uplift turns a £200 average basket into £260 — that covers the fee premium.

For items under £30, or perishables where your customers rarely increase basket size due to deferred payment, the AOV uplift argument is weaker. We recommend BNPL for merchants with average order values above £50 in fashion, electronics, or home goods — run a controlled test before committing.

FCA Regulation of BNPL in the UK

BNPL currently sits outside FCA consumer credit regulation. The exemption is under Section 18 of the Consumer Credit Act 1974, covering interest-free credit repaid within 12 months by the retailer. The BNPL products your customers see at checkout are structured to fall within this exemption.

Draft legislation to bring BNPL under FCA oversight was published and consulted on in 2024. Under the proposed rules, your BNPL provider would need FCA authorisation, conduct affordability checks before offering credit to your customers, and comply with Consumer Duty.

The commencement date is not confirmed as of April 2026. Monitor FCA announcements. The likely practical effect for your checkout is that BNPL providers will need to display clearer disclosures to your customers — this is unlikely to change your merchant fee structure materially.

Until regulation comes into force, your BNPL customers have less statutory protection than they would under a regulated credit agreement. This is the regulatory motivation for the proposed changes — not a direct liability issue for your business.

BNPL regulation: what merchants should watch
Once BNPL regulation comes into force, Klarna and Clearpay will need to conduct affordability checks before offering BNPL at checkout. This may add friction to the checkout flow. Merchants should ask their BNPL provider how they plan to handle this — specifically, what happens at checkout if a customer is declined for BNPL and whether a fallback payment method is presented automatically.

How Open Banking Payments Work

Under UK Open Banking (Payment Services Regulations 2017), FCA-authorised Payment Initiation Service Providers (PISPs) can initiate a payment directly from your customer’s bank account, with their consent.

The payment flow: your customer selects “pay by bank” at checkout, is redirected to their banking app, authenticates with Face ID or fingerprint, and the payment arrives in your account via Faster Payments.

No card network is involved. No interchange fee. Your cost is 0.1–0.3% per transaction — compared to 1.5% + 20p for Stripe card processing. At high transaction volumes or high average order values, this is a material saving.

Your settlement is via Faster Payments and is typically instant or within hours. This is faster than card processing (1–2 working days) and significantly faster than Bacs direct debit (3 working days).

Open Banking Payment Providers

UK open banking payment providers you can integrate include TrueLayer, Volt, and GoCardless Instant Bank Pay. All three are FCA-authorised PISPs with published APIs.

TrueLayer and Volt publish rates in the 0.1–0.3% range. GoCardless Instant Bank Pay uses a similar structure. Verify current rates directly with your chosen provider — the rate you negotiate at volume may differ from the published rate.

The constraint is consumer adoption. Open banking payments require your customer to have a UK bank account and be comfortable authenticating payments via their banking app. Many UK consumers are unfamiliar with the flow and will drop out if it is not clearly explained at your checkout.

We find open banking payments work best for your B2B transactions, high-value purchases where the interchange saving is significant, and businesses where your customer base is UK-based and digitally engaged. For mixed or international customer bases, card remains the primary option.

Chargeback protection does not apply to open banking payments. Disputes are handled differently — there is no automatic reversal mechanism. We recommend you understand your open banking provider’s dispute process before enabling it for high-risk transaction types in your business.

BNPL, Card, and Open Banking Payments Compared (UK, 2026)

We have set out the key differences between standard card processing, BNPL, open banking, and direct debit for UK merchants.

Variable Recurring Payments: What Is Coming

Variable Recurring Payments (VRP) is an open banking payment type that lets you collect variable-amount recurring payments directly from a customer’s bank account, with a single upfront consent from your customer.

Unlike Bacs direct debit, VRP settles via Faster Payments — same-day or near-instant rather than three working days. Unlike a continuous payment authority on a card, VRP keeps your payment entirely account-to-account with no card network involved.

VRP is currently limited to sweeping — moving funds between your customer’s own accounts. The FCA and PSR are working on commercial VRP that would allow you to collect from your customers directly.

A commercial VRP pilot was ongoing with major UK banks in 2024–2026. Broad merchant availability was not confirmed as of April 2026.

When commercial VRP is available, it will compete with GoCardless direct debit for your recurring billing — faster settlement at lower cost. We recommend tracking PSR and Open Banking Implementation Entity (OBIE) updates if you run subscription or instalment billing.

Bottom line: BNPL works for high-ticket items where AOV uplift justifies the fee premium; open banking suits B2B and high-value transactions where you want to avoid interchange costs.

Frequently Asked Questions

How much does Klarna cost merchants?
Klarna charges a percentage fee per transaction, typically 2–6% depending on your volume, product category, and the specific Klarna product at your checkout (Pay in 3, Pay in 30). This is higher than standard card processing (Stripe charges 1.5% + 20p for UK cards). Klarna does not publish a single standard rate publicly — you negotiate based on your volume. The fee premium is the main cost consideration; whether it is justified depends on the AOV uplift BNPL generates for your specific product range.

Is BNPL regulated in the UK?
Most BNPL products are currently exempt from FCA consumer credit regulation under Section 18 of the Consumer Credit Act 1974, which covers interest-free credit repaid within 12 months. Draft legislation to bring BNPL under FCA oversight was consulted on in 2024. If enacted, Klarna and Clearpay will need FCA authorisation, conduct affordability checks on customers, and comply with Consumer Duty. The commencement date was not confirmed as of April 2026. Merchants should monitor FCA announcements.

What is open banking payment and how does it differ from a card payment?
Open banking payment is an account-to-account (A2A) transfer initiated by a licensed Payment Initiation Service Provider (PISP) directly from your customer’s bank account, with their consent. No card network is involved, so there is no interchange fee — your cost is typically 0.1–0.3% versus 1.5%+20p for card. Your customer authenticates via their banking app. The differences from card: lower merchant cost, instant settlement via Faster Payments, no chargeback protection, and lower consumer familiarity in the UK compared to card.

How do open banking payments compare to bank transfer?
Open banking payment initiation and bank transfer both move money directly between bank accounts via Faster Payments. The practical difference is UX and automation. A standard bank transfer requires your customer to manually enter your sort code and account number in their banking app. Open banking payment initiation is triggered from your checkout and pre-populates the payment details — your customer just authenticates. This eliminates manual entry errors and reduces friction significantly.

Should I offer BNPL on my ecommerce site?
It depends on your average order value and your product category. BNPL is most effective for fashion, electronics, and home goods above £50, where the deferred payment option materially increases your conversion or basket size. The fee premium (2–6% vs 1.5% for card) means BNPL needs to generate a measurable AOV uplift to be worthwhile. We recommend running a controlled test with BNPL enabled on specific categories, comparing conversion rate and AOV against a control period, before committing to a sitewide integration.

What are Variable Recurring Payments and when will they be available?
Variable Recurring Payments (VRP) is an open banking payment type that lets you collect recurring payments of varying amounts from a customer’s bank account with a single consent, settling via Faster Payments rather than Bacs. It combines the convenience of direct debit with faster settlement and potentially lower cost. VRP is currently limited to sweeping (between your customer’s own accounts). Commercial VRP for merchant collection was in a pilot phase with UK banks in 2024–2026; broad availability was not confirmed as of April 2026. Track PSR and Open Banking Implementation Entity updates.

How we put this guide together

BNPL merchant fees sourced from Klarna, Clearpay, and PayPal published merchant terms (April 2026). BNPL AOV uplift data is from Klarna-published merchant research, labelled as vendor-perspective — we have not independently verified it.

FCA BNPL regulation information from FCA consultation documents (2024) and HM Treasury draft legislation. Open banking payment provider rates from TrueLayer, Volt, and GoCardless published documentation (April 2026). VRP framework from PSR and Open Banking Implementation Entity (OBIE) published documentation.

The FCA BNPL commencement date and commercial VRP launch timeline were both unconfirmed at time of writing. This is editorial guidance, not regulated financial or legal advice.