What is the payment initiation and what are the use cases ?
Payment initiation is a recent concept having been introduced by PSD2 in 2018. This directive which we often talk about on our website has indeed introduced bank account aggregator fintechs, offering PIS (Payment Initiation Services) services.
Source : Slimpay
How payment initiation works?
In practical terms, payment initiation allows a company or an individual to initiate a payment order. This order does not have to be issued through the bank where the bank account is registered. The aim of the PIS is therefore to encourage and support interbank transfers made by people with accounts at different banks.
In the digital age, the payment initiation request is made via the main media such as smartphones (via a mobile application) and websites. The procedure can be summarized as follows:
- The consumer selects the items of interest on the merchant’s website.
- He is offered payment methods: in our case he chooses payment initiation.
- The buyer then chooses the bank from which the funds will be sent. The buyer is redirected to a dedicated web page summarizing the transaction information.
- On this page, the customer is asked to agree to the transaction. Once the purchase is confirmed, the customer is returned to the merchant site and the transaction is validated.
It’s hard not to think of Request to Pay (RTP) when you see this procedure. This scheme allowing to send payment initiations via messaging service is perfectly adapted for PISs. Even if we don’t have enough experience with this brand new method, it is impossible not to anticipate the possibilities that its solutions could bring.
Who can benefit from payment initiation?
As mentioned above, payment initiation has two main targets: companies and individuals.
For individuals, it already provides a new alternative to traditional payment methods. Moreover, they will be able to do without their bank card to a certain extent, as payment initiation does not require them to provide their banking information. As PISs work through transfers, individuals do not have any ceiling constraints and reduce the number of intermediaries through which their transactions pass.
On the merchant’s side, the irrevocable aspect of a transfer initiated by the buyer provides security. It should be remembered that despite this irrevocability, customers are still protected by consumer law and by the merchant’s terms and conditions. The fees applied to a PIS are lower than the interbank commissions applied to payment cards. This allows the merchant to collect larger amounts while reducing the amount of commission he pays.
A strong correlation between Instant Payment and PIS
It should be noted that many payment solutions depend more or less strongly on others to function at their best. Payment initiation is no exception, and despite all the advantages presented above, it needs support to integrate well.
She is likely to find this support through the Instant Payment. It is impossible not to notice the perfect complementarity of these two solutions.
Payment initiation services are dependent on the timeframes applicable to transfers, which range from 1 to 4 working days depending on the banking institution. Even if these times are still quite short, the race towards instantaneousness is on. One of the challenges of Instant Payment is to speed up money transfers, so that merchants can receive funds instantly after the purchase.
Combine a PIS service with instant payment and you have a forward-looking version of the payment of the future: instant and omnichannel. It’s still early to see applications of this new payment path, but it’s certain that we’re heading towards a faster version of interbank funds transfers.