Two new types of banking players arose from the EU’s Payment Service (PSD2) – Directive (EU) 2015/2366 that came into force in 2018 that have, with wider Open Banking changes, the potential to reshape the banking payments marketplace.
PSD2 applies only to the EU. However, the open banking and API technology being implemented across the world creates the environment for similar consumer-facing initiatives.
PSD2 legislated a new type of financial services business called an Account Information Service Provider (AISP) that aggregates a consumer’s financial information in one place, normally a mobile phone app to help them track their spending or plan their finances. AISPs use open banking and API technology and have largely replaced ‘screen scraping’ services that banks and other organisations had previously used. (Examples include Money Dashboard.)
The second, and the subject of this section, was the authorisation of Payment Initiation Services (PIS) that offer a new way for consumers and merchants to exchange value using a Payment Initiation Service Provider (PISP), which may or may not be a bank.
A PISP is any business that initiates online payments on behalf of the consumer (offering an alternative to using a debit card or credit card or online payment) to pay a merchant for goods or services. Examples in the UK include BankiFi, Sprive and Bud.
Because it doesn’t use a debit card or credit card, the transaction doesn’t go through the card scheme systems and is conducted from bank account to bank account. This has the potential to reduce or remove the interchange fee, although someone somewhere will have to make money to pay for it.
PISPs are authorised to view and process the account holder’s information and make payments to and from their account. AISPs can only view and process the information.
PISPs can therefore help simplify how consumers move and save money between their accounts instantaneously (although countries such as the UK have had Faster Payments that reduces inter-bank transfers from three days to a matter of seconds since 2008.)
There are some drawbacks to PISP payments to merchants. For example, there’s no chargeback protection that debit cards and credit cards offer if the goods are not delivered or faulty.