What is Payment Initiation & How can you Benefit?

What is payment initiation?

A customer gives consent for a Third-Party Provider (TPP) to enact a direct bank transfer from the customer’s bank account. Payment Initiation Service Providers (PISPs) can execute these payments directly by providing the relevant login and transfer details on behalf of the customer, rather than the customer being redirected to their online banking app or an online payment gateway. This revolutionary change in the payments process is due to the open banking regulations of the EU’s Payment Services Directive (PSD2). Payment initiation means online payments are quicker, more transparent, and make certain middle-man bank fees for payment gateways obsolete. 

This process is usually utilised for direct bank transfers in the context of online trading with merchants, otherwise known as e-commerce purchases. This is a result of technology advancement being created to fulfil the need for a better and safer user experience in the payment industry.

How does it work?

Payment initiation occurs through programming between APIs (Application Programming Interface) rather than relying on human users. After TPP has been granted access to the customer’s chosen bank’s data, a login interface for the user’s bank is then created where the user can store the relevant bank’s credentials. Once the credentials and transaction are validated and authorised by the bank, a signature request is prompted. Usually, a single-use code is needed for the payee to finally authorise the payment, in accordance with Strong Customer Authentication (SCA).

Typically, this data is transmitted via JSON arrays, using encrypted code to relay the bank credentials and transfer requests for the customer to the bank. Rather than the longer process of requesting information from the bank, PISPs are able to simply verify their information to request an immediate direct bank transfer.

What are the benefits?

• This is a more hassle-free user experience for businesses and customers. Rather than open their banking apps, type in debit card numbers, or fill out recipient accounts to submit payment.

• This more technologically advanced way of relaying communications and payments means that payment flows can be greatly improved upon. 

• For businesses, an easy transaction process can translate to better sales conversions. If users don’t need to leave the platform or service to complete a purchase, then they’re more likely to engage with the services and have a lower shopping cart abandonment rate.

• Payment initiation allows for real-time bank transfers, instead of waiting for 24 hours for pending transfers. These transactions are also received instantly, so essentially, it’s a payment method at the moment of purchase, which makes it a much easier process for customers and businesses to settle their bills. 

• This method also provides more security as payment credentials are encrypted, which further protects against fraud. The encrypted infrastructure can be tokenized to allow customers to reuse their payment information for new payment operations once payees provide their consent. Instead, they can simply authenticate the transfer with their bank directly from the merchant’s app or website.

• Payment initiation is a cheap, safe, payments option. Businesses can save money by upgrading from traditional methods such as card payments and invoicing. Also, by minimising the chance of fraud, there is a reduced risk of fraudulent chargebacks. In addition, customers won’t have to input sensitive bank account information, which improves user experience and trust.

Payment initiation has many benefits for customers and businesses in providing instant, easy, and secure online transactions. Imburse can help your business create a bespoke payment solution for your business. Get in touch with our team for more information.