PISP, XS2A, PSD2 and Banking API – do these mean anything to you? It’s not always easy to keep track of these confusing terms when it comes to the increasingly popular Payment Initiation Service Providers (PISPs). In short, PISPs are third-party providers that initiate payments on behalf of customers. However, customers are not the only ones that reap the benefits of this convenient alternative to conventional online payments by credit card.
Online providers also appreciate the PISP service offering, as it is both technically very easy to implement and often cheaper than other payment services. In this blog post we will answer the most frequently asked questions regarding Payment Initiation Service Providers.
1. What are Payment Initiation Service Providers?
Payment Initiation Service Providers (PISP) are providers of Payment Initiation Services (PIS). If a customer places an order with a PISP to initiate a payment, the provider will access the customer’s online banking account and initiate the desired transaction.
A typical area of application for this is in the realm of online trading. When a customer completes a purchase, they can use a Payment Initiation Service to make a transfer instead of using their credit card. The PISP initiates the transaction on behalf of the customer and triggers the transfer in real time via the customer’s account at the account-holding bank.
2. What is the difference between Payment Initiation Service Providers and Account Information Service Providers?
As the name suggests, Payment Service Initiation Providers trigger real transactions in an online banking account and debit a customer’s account on their behalf.
Whilst a PISP initiates a transaction on behalf of a customer, an AISP accesses account information for the purposes of analysis and aggregation.
By contrast, Account Information Service Providers (AISP) can only access account information. They analyse and aggregate account data and make it available to banks or third-party providers on behalf of the customer. For example, this may be done to check creditworthiness as part of an online loan application.
3. What impact does PSD2 have on Payment Initiation Services?
The Payment Services Directive PSD2 has laid the foundation for Payment Initiation Services. The European Union is opening up the financial market to third-party providers, which in bygone years was dominated exclusively by traditional banks.
One of the goals of PSD2 is to increase the variety of services through more competition so that customers are no longer solely dependent on the services provided by their house bank. Third-party providers who position themselves as Payment Initiation Service Providers offer end customers new payment solutions in cooperation with online retailers.
Examples of such Payment Initiation Service Providers are the Swedish FinTech Trustly or the Sofort banking service, which has its roots in Germany. Both providers have long since established themselves as universal payment providers, and many online shops use the solutions to offer their customers additional payment systems.
It is much more exciting to have the chance to offer a payment system based on White Label solutions under your own brand. For example, the car broker abracar, which belongs to the Allianz Group, has built up its own payment brand with abrapay. The result: a completely integrated and consistent online experience for the customer.
4. What requirements does PSD2 place on Payment Initiation Service Providers?
PSD2 creates the legal framework for Payment Initiation Service Providers and defines the requirements that all providers of Payment Initiation Services must meet. The most important requirements are:
- Unlike banks, which manage their customers’ money, Payment Initiation Service Providers only trigger transactions. Having said this, they never actually receive a customer’s money.
- Providers are responsible for ensuring that the customer’s security features such as login details are transmitted via secure channels using an online form. They must also ensure that third parties cannot access such information.
PISPs and AISPs ensure that transaction data, account information and customer data are transmitted with 100% security in accordance with PSD2.
5. What are the advantages of Payment Initiation Services for end customers?
First of all, customers benefit from a wider range of payment options. Retailers, online shops and FinTechs were working on developing new services long before PSD2 came into force. Market observers speak of a completely new ecosystem for payment systems.
The main focus is always on the idea of improving the customer experience when making payments. Instant payments as well as mobile and contactless payments are just a few of the buzzwords that are frequently used in this context. To put it simply, it is a matter of innovating payment concepts that have virtually remained untouched for decades.
Let’s use Amazon as an example: The online giant’s goal is to make the entire shopping experience as seamless as possible. Instead of interrupting the customer journey at the end of a purchase process, the payment process should become an integrated part of the customer experience.
However, completely new payment services are also making a positive contribution to the diversity of services in the payment market. P2P payment services such as Tikkie, which was developed by the Dutch bank Moneyou, would be inconceivable without the opening of the financial market to PISPs.
6. What role do Banking APIs and XS2A play for Payment Initiation Service Providers?
From a technical point of view, Payment Initiation Service Providers initiate a transaction via a Banking API. If a customer tells the provider to initiate a payment, the PISP uses the API to gain access to the customer account. This form of access to the customer’s online banking account is known as Access to Account (XS2A).