Everything you need to know about PIS and the role of payment initiation service providers (PISPs)

The PSD2 (Payment Service Directive 2) came into force on September 14th, 2019, across all EU countries and still applies in the UK after Brexit. The law has reshaped the entire landscape of digital payments by granting third-party access to consumer data, and in the process has encouraged collaboration and made banking more transparent.

One of the most important results of PSD2 is how the directive has opened opportunities for new payment methods, one of which is the Payment Initiation Service (PIS), which uses online banking to make payments on the internet without the need for credit cards or regular bank transfers.

As a payment initiation service provider (PISP), we offer our clients payment initiation service through our open banking offerings. Let’s take a look at how a payment initiation service works, what the technology offers, and how it’s implemented, helping you to understand whether solutions powered by this technology are a good fit for your business needs.

A payment initiation service acts as a gateway between the merchant and the consumer. At checkout, a shopper ensures that all the transaction information is correct, authorises payment, and the merchant is informed that a transfer has been initiated. Although this might sound like a traditional online transaction, payment initiation service allows secure transfers in just a few taps of the screen. Payment initiation is completed within banking apps after Strong Customer Authentication (SCA) has been used to verify the payment. The funds then move from the user’s account to the merchant’s.

Overall, payment initiation services benefit both parties during transactions:

A payment initiation service may be technical in operation, but it’s pretty easy to explain: once a customer agrees for a payment provider to initiate a payment, a checkout interface will securely redirect them to their bank to complete the transaction. Unlike regular checkout payment flows, users don’t need to enter any credentials, only accept or decline payment. Strong Customer Authentication acts as an additional security measure when the user completes the process, often via a smartphone's fingerprint sensor. Details that pass through the payment initiation service provider's systems are fully encrypted, with the entire process happening quickly and seamlessly for customers.

Open banking is a technology that allows payment service providers to act as intermediaries between banks and merchants, opening up the possibility of secure data usage and direct transfers. Companies that offer open banking technology are designated as either AISPs (account information service providers) or PISPs (payment initiation service providers), depending on how they operate.

As the name suggests, an account information service provider offers an account information service (AIS). That means after receiving consent to access a consumer's bank account, an AISP can securely analyse the data in a read-only capacity and offer services according to that analysis.

Payment initiation service providers help to initiate payments from a user's bank account, after being given the consent to do so.

As open banking enters mainstream consciousness, the use of the payment initiation service will become widespread as a broader range of industries realise the benefits of open banking technology. Aside from being used to make payments for goods and services, payment initiation service technology also allows direct payments between individuals (known as pier-to-pier payments).

So how do merchants implement PIS technology from a practical standpoint? Luckily, with the opening up of bank APIs thanks to PSD2, payment initiation service providers can offer products that allow real-time data access and perform all of the necessary authorisation and initiate transfers.

A payment initiation service offers enormous advantages for businesses in virtually every industry. Hoteliers and travel operators are adopting the technology to mitigate chargebacks and deal with last-minute bookings. At the same time, retailers love the speed and convenience that payment initiation service brings to their online stores. Here are some of the benefits that a payment initiation service could bring to your workflow:

Payment initiation service technology allows businesses to use a single integration that works across multiple regions, allowing merchants to quickly scale in new markets, or simply cut down on development time. In the case of our open banking solutions, clients gain access to over 2,000 banks across the UK and EU, with customers able to pay using local payment methods, as well as popular modern options such as Apple Pay and Google Pay.

Because customers don't have to manually enter card details during checkout, their payment experience is generally faster, with less friction and a greater perception of security, ultimately helping to boost conversion.

A payment initiation service doesn't come with the usual fees commonly associated with bank transfers and doesn't incur card processing charges, as funds move directly between accounts. In addition, in the case of our open banking solutions, merchants can easily receive and send money across borders, reducing the fees associated with international transfers and currency conversion.

Open banking standards require robust security, encrypting payment transaction data to minimise the risk of data theft and fraud. Consumers don't have to provide card details on a merchant's website, and PSD2 requirements also call for multi-factor authentication, further improving the security of transactions.

According to the Competition and Markets Authority, as of 2022, open banking had more than 6 million active users in the UK, and as of 2024, these numbers are reported to have reached 10 million. Although payment initiation services have existed for some time, the full power of the technology is only now being realised.

The potential use cases offered by a payment initiation service provider can be extensive, though businesses will need to carefully research the development costs involved and whether their chosen partner can offer them the full functionality they require.

Our open banking solutions allow merchants to access all of the services they need to run a modern business through a single API and dashboard interface. Our ecosystem opens up a vast network of over 2,000 banks across the UK and EU region, along with all the local and global payment methods you need for quick, widespread scaleability in a rapidly changing online payments landscape.