Subscription-based and Recurring payments services have become a dominant force in today’s economy, powering everything from normal business services to streaming platforms to SaaS solutions, fitness memberships, and even meal delivery services. However, managing recurring payments efficiently has long been a challenge due to failed transactions, high processing fees, and rigid payment structures.

Open banking is revolutionising the way businesses handle subscription and recurring payments, offering a cost-effective and secure alternative to traditional card-based billing and direct debits. While direct debits have long been a popular option for recurring payments, they come with issues such as slow processing times, high failure rates, and a lack of flexibility, and high costs of getting a Direct Debit licence particularly for SMEs. Open banking, with its variable recurring payments, provides greater reliability, faster settlements, and enhanced security.

In this article, we’ll explore how open banking is reshaping recurring payments, why it is a superior option compared to direct debits, and how PayHQ.ai is integrating traditional gateways, direct debits, and open banking variable recurring payments into one unified platform to provide businesses with a seamless payment solution.

Subscription-based businesses often face several common issues with traditional payment processing:

• High transaction failure rates due to expired, blocked, or insufficiently funded cards.
• Expensive processing fees from card networks and intermediaries.
• Chargeback risks from disputed payments.
• Slow and rigid direct debits, which take days to clear and cannot be modified easily.
• Limited flexibility in payment options, restricting customer choice.
• Delayed access to funds, affecting cash flow and business stability.

By leveraging open banking, businesses can eliminate these pain points and offer a more reliable and flexible recurring payment solution compared to direct debits.

1. Faster Settlements for Improved Cash Flow

• Direct debits can take 3–5 days to process, delaying access to funds.
• Open banking enables instant or same-day payments, providing businesses with real-time access to funds.
• PayHQ.ai’s intelligent payment routing prioritises faster settlement options, helping businesses optimise cash flow.

Statistic: Businesses using open banking for recurring payments see a 30% improvement in cash flow stability (Source: PwC UK).

2. Lower Failure Rates and Reduced Payment Disruptions

• Direct debits fail at a rate of 5–10% due to incorrect details, insufficient funds, or outdated mandates.
• Card-based subscriptions also suffer failure rates of up to 15% due to expired or blocked cards.
• Open banking eliminates these issues by using direct bank-to-bank transactions, ensuring payments go through reliably.
• PayHQ.ai’s system pre-validates account balances before initiating payments, reducing failure rates.

Statistic: Businesses switching to open banking recurring payments experience a 50% reduction in failed transactions (Source: UK Finance).

3. Reduced Costs Compared to Cards and Direct Debits

• Direct debits involve bank fees and administrative costs, while card-based payments come with interchange fees.
• Open banking bypasses card networks and intermediaries, reducing transaction fees by up to 90%.
• PayHQ.ai intelligently routes payments through the most cost-efficient method, whether that be open banking, direct debit, or card payments.

Statistic: UK businesses using open banking payments save an average of £25,000 per year in transaction fees (Source: Deloitte UK).

4. Greater Payment Flexibility for Customers

• Direct debits are inflexible, requiring customers to go through their bank to modify or cancel payments.
• Open banking allows for variable recurring payments, giving customers the option to adjust payment dates and amounts as needed.
• PayHQ.ai enables businesses to offer flexible billing options, increasing customer satisfaction and retention.

Statistic: Businesses offering flexible subscription payment models see a 25% increase in customer retention (Source: UK Finance).

5. Enhanced Security and Compliance

• Direct debits are prone to unauthorised disputes, leading to chargebacks and revenue losses.
• Open banking uses Strong Customer Authentication (SCA), significantly reducing fraudulent transactions.
• PayHQ.ai integrates AI-powered fraud detection across all payment methods, ensuring a high level of security.

Statistic: Open banking reduces fraud risks by 50% compared to traditional direct debit and card payments (Source: Financial Conduct Authority UK).