A central element of the revised Payment Services Directive (PSD2) is the access to customers’ payment accounts held by banks through application programming interfaces (APIs). PSD2 stipulates that banks will provide access to payment accounts for two new categories of third-party providers: Payment Initiation Service Providers (PISPs) and Account Information Service Providers (AISPs).
The PSD2 designates banks and other similar institutions as Account Servicing Payment Service Providers (ASPSPs), in an attempt to distinguish them from new players who access customer accounts through so-called open APIs.
What Exactly are Payment Initiation Service Providers (PISPs)?
The first playing field for PISPs will be online payments. A PISP can create and issue payment instruments and initiate online and mobile payments to beneficiaries (businesses and individuals) directly from the payer’s account. In order to access a customer’s account, a PISP must have the customer’s permission and approval. After the payment account is accessed, the PISP initiates a payment instruction that debits the account. It is essential for the PISP to know the account information of the beneficiaries (the customers) to which the funds are being sent. As a result, PISPs need to establish connections and manage relationships with payment service users (PSUs) and their account holders, the banks (ASPSPs).
In that regard, PISPs offer a range of benefits to both the customer and the business receiving payments. Here’s how:
A Streamlined PISP Payer Experience
With recent advances in mobile payment technology, PISPs can help you deliver a streamlined experience to your payers. You authenticate a transaction on your mobile device using biometrics, just like you would with your normal banking app. Customers can check out using their mobile devices, or they can check out using decoupled methods of authentication on your website.
When you offer customers the option to initiate a payment, you provide them with a convenient, secure, and fast payment method. By enhancing payment processes and user experience, your business could gain more customers, generate more transactions, and stand out from the competition.
As the bank transfers are only initiated after a payer authenticates the transaction with Strong Customer Authentication (SCA), PISPs drastically reduce the possibility of payment fraud.
Likewise, with the PISP model, payers never share their credentials with merchants or payment gateways, but only enter them directly into their banks. As a result, both consumers (fraud later on) and merchants (data breaches down the road) are less inclined to commit fraudulent acts, helping to build trust among both customers and potential new customers when they make purchases.
Cost efficiency of PISPs
A PISP allows money to be collected and set in real-time, so that you can see the status of payments around the clock. When the payer completes payment initiation, the bank transfers the payment to the merchant. Most PISP payments reach the merchant’s account in less than 10 seconds, according to studies.
As another advantage of accepting payments through PISPs, payers are limited in their ability to reverse or claim chargebacks. With this approach, whenever a merchant is paid, the funds in the merchant’s account are cleared and immediately accessible by the merchant for their cash flow needs without the need for any acquisition companies or other payment providers to reserve funds.
In general, PISPs charge more competitively and transparently than traditional financial institutions. However, depending on the type of card, card fees can vary, and additional fees can apply in the event of fraud or chargebacks. PISPs are also considered an attractive alternative, since they charge lower transaction fees and eliminate failed payment costs.
The customer can establish a Direct Debit Instruction with Open Banking or Payment Initiation Service. It allows Direct Debits to be conveniently set up on mobile devices for the collection of subscription payments, including telecoms, utility bills, and fitness club memberships.
With the ease of use and efficiency of PISPs, businesses can stand out from their competitors in the payment service space. Therefore, if you are growing a business you need a payment solution that can grow with you. PISPs can offer a level of flexibility which goes far beyond that offered by traditional banking lines.