The Advent of Payment Initiation Services

The payment space is getting quite interesting due to Open Banking, which is paving the way towards a new wave of innovative payment solutions.

But before we dive in, let’s start by defining Payment Initiation, which is an online service that accesses the user’s payment account to initiate the transfer of funds on their behalf with the user’s consent and authentication. Due to direct communication facilitated through the use of secure APIs between banks and Payment Initiation Service Providers, users will not be redirected to payment gateways. But instead, the customer grants permission to a licensed third-party provider (TPP) to securely make a payment on their behalf.

So, what are some of the advantages?

  • Since we are eliminating payment gateways and bank interfaces, then we are also getting rid of online payment fees related to online card-based transactions significantly
  • Real-time direct bank transfers vs. bank transfers that usually takes up to 24 hours to clear
  • Added and improved security layers to combat fraud and cyber threats which means users’ encrypted credentials can be used to programmatically to execute new payment operations

As for merchants and small businesses:

  • Lower transaction fees and less risk of encountering chargebacks
  • The opportunity to receive funds instantly rather than waiting for 2 or more
  • Improved cash flow, as the payment transaction hits the merchant’s bank account instantly

In conclusion, payment initiation allows customers to perform most of their banking operations anywhere and anytime. It also allows merchants to provide better overall customer experience and most importantly reduce their costs significantly. These are some of the significant benefits in which the ecosystem players could realize by taking advantage of Open Banking. Stay tuned for our upcoming blogs where we will cover some of the practical use cases!

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