Payment Initiation Service is changing the banking industry

December 9th, 2022

The emergence of PIS providers has revolutionised the payment industry, but what exactly is it?
In this article, we’ll dive into the role of PIS, examples of use cases, and tell you exactly how it’s shaping the financial landscape.

What are Payment Initiation Services?

Payment Initiation Services (PISs) are a form of Fintech technology that enables users to make payments electronically and directly from their bank accounts.

In simpler terms, this is the digital infrastructure through which customers can manage, initiate and track payments.

They are provided by Payment Initiation Service Providers, or PISPs for short, and can be integrated into existing financial services or embedded into new ones.

For users – the general public — PISs provide a more convenient way to pay for goods and services, eliminating the need for physical cash or card payments. And after the COVID-19 pandemic, digital-payments penetration increased to 89 percent in 2022.

Service providers can offer faster and more secure payments for customers, as well as reduce costs associated with manual processing.

The rise of Payment Initiation Service (PIS) providers

The concept of payment initiation services is not new, but the demand for such technology has grown by leaps and bounds in the past decade.

And with the emergence of new payment providers, the banking industry has seen a shift away from traditional payment methods and more toward innovative, user-friendly PIS technology.

Today, customers have more control over their finances as they can easily initiate payments electronically, without having to wait for funds to be processed through traditional banks.

In addition to this, the integration of PISs into existing banking services has enabled neo-banks to offer a range of new features, such as real-time money transfers, instant payments and even the ability to process refunds.

PSD2, SCA and Open Banking - what do they all have in common?

These all represent different aspects of the same thing, which is the Payment Services Directive 2 (PSD2). PSD2 is a regulation designed to enhance consumer protection, reduce fraud, and promote competition in the payment industry.

SCA stands for Strong Customer Authentication, which is a set of security measures required by PSD2 to protect consumer data and reduce the risk of fraud.

Open Banking is a concept driven by PSD2, which aims to open up banking APIs in order to facilitate the development of new services that use financial data.

How do embedded payments fit in?

PIS allows merchants to embed payments into their own products, services, and websites.

Embedded payments provide merchants with access to customer data and payment information, allowing for customer segmentation and targeted promotions.

Additionally, embedded payments are compliant with PSD2 and SCA, which provides extra security and customer protection.

What’s the difference between A2A payments and PIS?

A2A payments (or Account-to-Account payments) are a way of transferring money from one account to another, typically with a payment service provider (PSP) acting as an intermediary.

PIS and A2A payments offer similar benefits, such as low costs and speed. However, the key differences involve better user experience and increased conversions. PIS seamlessly integrates into existing embedded payment flow, meaning there are fewer redirects and users are not required to leave the payment page to initiate a payment, such as in A2A payments. In addition, PIS is known for its customised mobile-friendly experience versus offline, desktop A2A payments. As a result of the better payment experience associated with PIS, higher conversion rates are likely to be higher.

What’s the difference between AISPs and PISPs?

Account Information Service Providers, (AISPs) provide access to account information and customer data, allowing providers to develop applications and services that leverage financial data.

PISPs provide a secure, efficient and convenient way for customers to make payments directly from their bank account.

What are the benefits of PIS for Fintechs

Increased efficiency

PIS provides an efficient and convenient way to make payments from bank accounts. They eliminate the need for manual processing and enable service providers to process payments quickly and securely. This can lead to faster transaction times, improved customer experience, and reduced costs.

Improved security

PISs are required to meet the security requirements of the PSD2. This includes incorporating SCA which helps to reduce the risk of fraud and protect both Fintech merchants and consumers.

New business models

PIS providers are revolutionising the payment industry, and it’s easy to see why. The technology is fast, secure, and efficient, providing merchants, banks and customers with a wide range of benefits.

Furthermore, the emergence of new business models enabled by PISs is opening up an exciting range of new opportunities. For example:

Embedded payments allow businesses to embed payment services into their existing products and services.
Open banking enables third-party developers to create innovative financial services using customer data.
AISPs provide access to customer data, allowing businesses to create targeted applications and products.

How do Banking APIs fit into PIS?

Banking APIs allow fintechs to leverage customer data and build innovative services that optimise financial information.

As the Fintech sector grows and evolves, and with lower costs to entry, fintechs need to connect and integrate with a wide range of services to innovate – fast. But, building multiple integrations and connecting them all together with digital banking solutions or activating additional embedded payment experiences, can be costly and time consuming.

Seamlessly and effortlessly linking with core banking systems such as cross border payments and FX, will help organisations in the financial market to remain competitive and disruptive.

By utilising banking APIs, fintechs can quickly develop a PIS that enables customers to initiate, authorise and execute payments with just a few clicks of a mouse.

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