Open Banking: What is Payment Initiation?

Our Thinking

Posted on June 30, 2021
Open Banking: What is Payment Initiation?
Payment Initiation is an Open Banking-enabled method for online payments. When using a Payment Initiation Service, consumers give consent for a third party PISP to make a connection to their bank account.
OpenPayd Editorial Team
OpenPayd Editorial Team
June 30, 2021

Payment Initiation Services are one of the most attractive and important new tools born of Open Banking. Payment Initiation is extremely useful for any business that needs to make or receive payments digitally, and is set to both streamline payment processes and enable entirely new consumer experiences.

So what are Payment Initiation Services, and how can they benefit your business?

What is Payment Initiation?

Payment Initiation is an Open Banking-enabled method for online payments. When using a Payment Initiation Service, consumers give consent for a third party Payment Initiation Service Provider (PISP) to make a connection to their bank account and subsequently initiate a payment from that connected bank account. PISPs use the bank in question’s tools to make transfers in or out of the user’s account, with payments authorised by the user within the app or site they are already using, rather than through an additional or separate interface.

What are the benefits of Payment Initiation?

PISPs offer benefits to both businesses and consumers. For the latter, Payment Initiation represents a convenient payment option as they no longer have to, for example, make a manual transfer from their bank account, or even root around for card details. Instead, they select ‘pay-by-bank’, choose their bank within the payment gateway, authorise and confirm the payment, and the payment is initiated.

For businesses, Payment Initiation means better conversion rates. Simpler, more convenient payment journeys for consumers mean lower cart abandonment rates and better customer satisfaction and retention. Businesses using Payment Initiation can keep their customers within their own ecosystem from the very beginning of a transaction to the very end.

In addition, Payment Initiation can represent a major cost saving. It can be significantly cheaper to integrate with a PISP than to establish relationships with card acquirers and other relevant parties individually.

What are some of the Payment Initiation use cases?

Payment Initiation Services are already being used in a range of different ways, with the benefits of a smoother customer experience and cost saving opportunities appealing to a wide variety of businesses. Here are some examples of how Payment Initiation Services are transforming businesses in specific industries. 

Financial services: One popular use case is within financial management apps, a whole plethora of which have been made possible by Open Banking. Using Payment Initiation Services, financial management apps can, for example, automatically transfer funds between a user’s accounts in order to ensure they stay within credit limits, avoid an overdraft or hit savings goals.

Digital currencies: Customers buying and selling cryptocurrency need to deposit fiat money in order to do so. Many would prefer to do so by bank. With Payment Initiation Services, this becomes a simple, in-app process. While Apple Pay and Google Pay enable in-app payments, they require a payment card to be attached, whereas Open Banking does not. This enables crypto exchanges and brokers to offer their typically tech-savvy, mobile-first customer base an experience they expect. 

iGaming: The entire point of in-app purchases that iGaming has built its foundation on is that users don’t want to leave their experience to make a purchase. This includes having to find card details. Embedding a Payment Initiation Service lets the customer get back to their gaming experience as quickly as possible.

Investment platforms: Historically stock brokers and fund managers would have phone calls with their clients to advise them on how and when to move their money, or be given a certain amount of funds to preside over. With a Payment Initiation Service, this process can be substantially accelerated. Money can be transferred with a few clicks, ensuring opportunities are seized upon at the earliest possible point. 

Insurance platforms: When choosing an insurance provider, something all customers want is their claim to be processed and paid as soon as possible in a secure way. By introducing Payment Initiation, that process can take a huge step forward, due to the often real-time nature of Open Banking payments. 

As for the insurance provider, they can benefit from seamless policy renewals and all-round enhanced efficiency.

In the medium term, though, the most visible application of Payment Initiation Services will be in consumer payments. Within the next couple of years, consumers will be as comfortable using PISP integrations and clicking pay-by-bank as they currently are using Chip and PIN or Contactless – a reality that is acknowledged by the payments industry, which is firmly behind Payment Initiation.

How are Payment Initiation Services related to Banking-as-a-Service?

Open Banking is enabling important new innovations in Banking-as-a-Service (BaaS). If BaaS provides the tools for the delivery of financial services, Open Banking is opening up the range of applications for those tools.

Payment Initiation Services are most readily available to businesses through a reputable BaaS provider such as OpenPayd, whose platform model enables businesses to access an entire ecosystem of banking and payments services through a single interface or API integration. BaaS (or ‘Embedded Finance’) platforms are revolutionising the provision of financial services and are leading the important next wave of fintech. BaaS technology allows businesses of every size and in virtually every industry or sector niche to integrate financial products and tools within their existing offerings, whether that’s Payment Initiation, FX capabilities, account management, global payouts and much more.

So what is an Account Information Service Provider?

Payment Initiation Service Providers (PISPs) are contrasted with Account Information Service Providers (AISPs). While PISPs are authorised by users to initiate payments to or from an account, AISPs are authorised to view account information such as transaction details. PISPs are sometimes referred to as having ‘read-write’ access to accounts, while AISPs have ‘read-only’.

You can read our full article on Account Information Service Providers here if you’d like to learn more.

How can I integrate Payment Initiation Services in my business?

The potential applications of Payment Initiation Services are wide-ranging and significant, and there is a growing range of PISPs with their own individual offerings. But Payment Initiation also represents yet another tool for which a business must identify and contract with a provider, and integrate and maintain the relevant systems.

This is where the platform model comes in. By partnering with a BaaS platform provider such as OpenPayd, businesses can easily access all the banking and payments services they need through a single API or web interface. OpenPayd has a global network of partner providers and licence-holders, enabling customers to quickly and efficiently build the financial infrastructure they need in order to build and grow their business.

Want to learn more about Payment Initiation Services? Get in touch today.