A quarter of all UK's consumers have more than one bank account. Managing them is far from frictionless, as it requires switching between multiple online banking sites and apps. In the previous article, we explained that AISPs work as third parties to help users view all of their banking information in one place. AISPs, however, cannot initiate payments on the customers' behalf - that’s where PISPs come in.
What is PISP?
A PISP (Payment Initiation Service Providers) is a third party which enables a payment to be authenticated and paid directly out of a persons or businesses bank account, utilising Faster Payment rather than a debit or credit card.
This is taking direct aim at Mastercard and Visa. With the European Banking Association (EBA) who created the Open Banking initiative, taking a very public dislike to their duopoly and charging strategy towards merchants.
Advantages of PISPs
This new payment method has added bank level security, less middlemen (Mastercard/Visa) and offer much lower transaction fees (no issuer and acquirer fees). The theory being that merchants can then pass these savings on to the customer (nice thought).
A fundamental change is also the direct settlement model, with funds settling instantly into a companies bank account, not into an intermediary bank account. Meaning a business gets access to the funds right away, not having to wait for a chargeback wait period (because with PISP there aren’t any).
From a users perspective, we envisage a ‘Pay by Bank’ option at checkout or attached to an invoice. Instead of entering a card number, an identifier such as account name will be used, with a push notification being sent to the payers phone by their banking app which they then confirm the transaction using Face / Touch ID.
But as a payer, why do I care what merchants are getting charged for a transaction?
With the latest payment services regulations banning credit / debit card surcharges, merchants are now having to swallow the card fees, so expect to see them trying different tactics to get you to pay with payment initiation, with it being relevant to all UK banks, it’s already ubiquitous and therefore not alienating potential customers or risking dropoff at checkout.
Also part of the new payment services regulation is the concept of Secure Customer Authentication (SCA) being aligned for both cards and payment initiation in September 2019. Even card payments will be sending push notifications to your phone via your banking app. There is certainly a near future, where a payer might not even know if they are paying by card or payment initiation.
Is it secure?
Yes, the actual transaction runs on the Faster Payment rails, which is the same as bank transfers currently run on. Billions of transactions currently run on this every year. Each bank has also built a secure API for handling the process, so you’re in good hands.
What if a payment is taken by accident?
Impossible. You’re bank account information is never stored with a merchant, so they can never charge without you knowing about it, unlike with a debit or credit card. All payments must go through an authentication process, most likely involving your mobile banking app.