A Payment Initiation Service (PIS) is a regulated service through which an authorised third-party provider – a Payment Initiation Service Provider (PISP) – instructs a payment directly from a user’s bank account to a recipient, with the user’s explicit consent. Rather than routing a transaction through a card network or requiring the user to log into their bank separately, PIS enables the payment to be initiated from within a third-party application, using secure API access to the user’s bank. PIS operates under the Payment Services Directive 2 (PSD2) framework in Europe, which mandates that banks provide PISPs with access to their payment infrastructure through standardised open banking APIs.
As illustrated in a typical PIS payment flow, a user selects a bank payment option at checkout or within an application. They are redirected – or presented with an embedded consent journey – to authenticate directly with their bank using Strong Customer Authentication (SCA). Once authenticated, the user confirms the payment details, and the PISP submits the payment instruction to the bank via its open banking API. The bank processes the payment as a direct account-to-account transfer, crediting the recipient’s account without involving a card network or payment intermediary. The PISP receives confirmation of the payment initiation, though final settlement depends on the underlying payment rail used, such as Faster Payments in the UK or SEPA Instant in Europe.
Key Takeaways: #
- Common use cases include e-commerce checkout payments, P2P transfers, bill payments, in-app purchases, and merchant account-to-account (A2A) payment acceptance;
- A Payment Initiation Service (PIS) is a regulated open banking service that enables authorised third-party providers (PISPs) to initiate payments directly from a user’s bank account, with their explicit consent, bypassing card networks entirely;
- PIS is governed by PSD2 in Europe and must be provided by a licensed Payment Initiation Service Provider (PISP), authorised by a national competent authority such as the FCA in the UK or EU member national competent authority.
How Payment Initiation Service Can Be Used #
E-Commerce Checkout Payments: Payment iniIS enables consumers to pay for online purchases directly from their bank account at the point of checkout, without entering card details. For merchants, this reduces payment acceptance costs by eliminating card interchange fees and chargebacks. For consumers, it removes the need to store card details with multiple retailers and provides a faster, more direct checkout experience.
Peer-to-Peer (P2P) Transfers: PIS powers direct bank-to-bank P2P payment flows within third-party applications – enabling users to send money to contacts, split bills, or repay personal debts without leaving the app. Unlike card-based P2P services, PIS-initiated transfers move funds directly between bank accounts with no intermediary holding the funds in transit.
Bill Payments and Recurring Transfers: PIS can be used to initiate one-off or scheduled bill payments – including utility bills, subscription services, and loan repayments – directly from a user’s bank account. Variable recurring payment (VRP) frameworks, which are being developed across open banking markets, will extend PIS to support automated recurring payments with greater flexibility than traditional direct debit mandates.
In-App Payments: Businesses operating mobile platforms, such as transport, food delivery, or ticketing apps, can integrate PIS to enable seamless in-app payment initiation directly from a user’s bank account. This provides an alternative to in-app card payments and digital wallets, reducing processing costs and simplifying the payment flow for users who prefer bank-based payments.
Merchant Account-to-Account (A2A) Payment Acceptance: For merchants of all sizes, PIS provides a lower-cost alternative to card acceptance. By accepting PIS-initiated payments, merchants can reduce or eliminate interchange fees, receive funds faster through real-time payment rails, and reduce exposure to card fraud and chargebacks. This makes PIS particularly attractive for high-volume, low-margin businesses where card acceptance costs represent a significant operational expense.
The Technology Behind PIS: PIS operates through secure open banking APIs provided by banks and payment institutions under their PSD2 obligations. When a PISP initiates a payment, it communicates with the user’s bank via its open banking API, submitting a standardised payment instruction that the bank processes through its core payment infrastructure. The PISP never handles the user’s funds directly; it acts solely as the instructing party. All API communication is secured using OAuth 2.0 authentication and transport-layer encryption, and the user’s consent is captured and verified through the bank’s own SCA process.
PIS Within the Open Banking Ecosystem: PIS is one of the two core services enabled by PSD2 open banking alongside Account Information Services (AIS). Together, they form the foundation of the open banking framework, allowing authorised third parties to interact with bank accounts in a regulated, consent-driven manner. By enabling direct account-to-account payments, PIS reduces reliance on card networks and supports the development of a more competitive and cost-efficient payments ecosystem across Europe and beyond.
FAQ #
What is the difference between a Payment Initiation Service and a card payment?
- A card payment routes a transaction through a card network – such as Visa or Mastercard – involving the card issuer, acquirer, and network as intermediaries. A PIS-initiated payment is a direct account-to-account transfer, instructed via an open banking API, that bypasses card networks entirely. PIS payments are generally lower cost for merchants, carry no chargeback risk in the traditional sense, and settle through bank payment rails such as Faster Payments or SEPA Instant.
What is Variable Recurring Payment (VRP), and how does it relate to PIS?
- Variable Recurring Payment (VRP) is an extension of PIS that allows a PISP to initiate a series of payments from a user’s bank account under a single standing consent, with variable amounts and dates within pre-agreed limits. VRP is being progressively rolled out across open banking markets – most actively in the UK – as a more flexible alternative to direct debit for recurring payment use cases such as subscriptions, utility bills, and platform-based payments.
Baseella comes with built in APIs created for open banking, which allow you to remain compliant with the obligations of providing access to your customer data. Reach out to us to learn how you can leverage this innovative payments technology.
