Open banking is a groundbreaking concept that is enabling access to financial data, spurring innovation and improving competition in the financial services industry. It extends more power to consumers, who can now share their data, empowering businesses to offer a variety of cutting-edge (financial) data-driven products and services. Similarly, Payment Initiation Service Providers (PISP) are key players in the Open Banking payment process.
What is PISP and Its Purpose in the Payment Process?
Payment initiation service providers, or third-party providers, are companies authorized to conduct transactions on behalf of customers. The term refers to online payments that do not require credit or debit cards to initiate transactions.
As all PISPs are independent, they may choose which banks they work with, so end users can grant the service provider access to their bank account(s) regardless of which bank they use. Using PISPs saves time since a customer can pay all invoices via the PISP rather than logging in and paying through their online bank account.
What is Open Banking?
With Open Banking, customers are in control of their own banking data. They can then grant access to this data to third-party providers, or PISPs (Payment Initiation Service Providers), such as fintech companies, online businesses, and messaging apps. Companies that provide payment initiation services can analyse this information or utilize it to initiate transactions.
In Open Banking, payments are made instantly from one bank account to another. Open Banking accesses and exchanges banking data using open APIs, short for Application Programming Interfaces. Data is transferred via these instructions, which are documented and openly available.
How Open Banking supports PISPs
Open Banking API specifications support Payment Initiation Services (PIS) that enable PISPs to initiate payment orders on behalf of PSUs, with their consent, from their online payment accounts held by their ASPSP. The PISP may then retrieve the order status from the payment order. Each of the Participants (PISPs and ASPSPs) in the delivery of these services can then optimize their customer experience.
Furthermore, it clarifies to these participants the usage of the APIs that have not been addressed in the technical specifications and lists some best practices for implementing customer journeys.
There is a notable exception to this requirement in that ASPSPs do not need to support certain payment methods described in this section when they do not support such transactions through their own internal channels. A customer who can initiate recurring transactions, international payments, or batch files of payments via the web should be able to do the same via a PISP, irrespective of how they access the PISP.
There is a growing network of PISPs with their offerings, and the applications of Payment Initiation Services are wide-ranging and significant. Thus, you are no longer required to access your online bank to pay invoices. A PISP contains all your bank details, allowing you to pay all invoices via the PISP, the amount is withdrawn from the bank account you set.