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June 28, 2021

Initiating: Payments in Europe

Martijn Bos

You’ve spent the last 30 minutes ‘adding to cart’ on your favorite e-commerce site, and hit ‘check out’. You’re scrambling to find your credit card, manually enter your details, double check the number sequence, and if you’re in many places in Europe - open an additional app and scan an onscreen QR code to authorise your payment via Secure Customer Authentication. Exhausting

It doesn’t have to be that way though, and we think payments should be safe and easy - thanks to open banking regulation like PSD2. Open banking gave us payment initiation services in Europe - a quick, easy and secure way to connect with the merchant you’re interacting with and with a few clicks instruct your bank to make a payment - no extra work required. We’re exploring what payment initiation is meant to do, and more importantly - what we’re seeing it do.

Where it all started

We took a closer look at PSD2 and what it says about the need for PIS in Europe. According to the European Banking Authority’s (EBA) guideline on PSD2, one of the key goals in Payment Initiation services is to allow users to play “a part in e-commerce payments by establishing a software bridge between the website of the merchant and the online banking platform of the payer’s bank - in order to initiate payments” as well as the ability to make payments using their own bank. Sweet. 

Even sweeter? That also means not needing to be part of other expensive payment schemes, like traditional card schemes,  because PIS services are governed by a contract between a PISP and the merchant. The only thing a person needs to do is select their bank and authorise the payment.

For merchants, regulators see the concept of payment initiation notifications as a key win in commercial trust building, especially in services that involve the dispatching of goods. This makes sense, as most of the promising PIS use cases are in e-commerce. 

The EBA explains this as “providing comfort to a payee that the payment has been initiated in order to provide an incentive to the payee to release goods or to deliver the service without undue delay. Such services offer a low-cost solution for both merchants and consumers and provide consumers with a possibility to shop online even if they do not possess payment cards”.

If you’re wondering - that’s legal speak for ‘you can trust your buyer, the money is on the way.’  

Where we’re heading

Consumers across the EU are responding to new payment options like PIS- our own volume is seeing month-on-month growth!  

We think it’s due to a few reasons:

  1. Keeping the end user in the driver's seat - payments can only occur when the user consents to a connection and authorises a payment transaction.

  2. An integrated offering, offering a one stop experience - users can initiate payments from within their e-commerce environment, with flows automatically redirecting users to where they need to be in order to authorise and effect the payment instruction.

  3. Merchant wins - PIS allows a very seamless payment experience that’s embedded within the merchant's environment, which leads to less drop-offs… and more sales. It’s important to mention though that this is where banks and PISPs need to work together.  If banks add too many screens or superfluous clicks in what’s called their part of the payment flow, known as the ‘step-out’ component in a PIS transaction - drop offs will still occur.  

We are just getting started 

ObeP (Online banking ePayments), like PIS transactions, are taking off - with some estimates reporting that by 2023, they may overtake cards in the e-commerce space. It’s not hard to see why, looking at the growth trajectory of open banking enabled solutions, for instance on the UK’s Open Banking site:  “The number of API calls has increased from 66.8 million in 2018 to almost 5.8 billion in 2020.” Cumulatively, API call volumes reached over 7 billion between 2018 and 2020. 320,000 open banking payments were made in 2018, this has subsequently risen to over 4 million in 2020.”

Buckle up and join the ride with our new Payments v2 offering! Contact Plaid to learn more about how we can support you. Interested in PIS? check out the other post in this series:

Mythbusting: Consumer Protection and PIS payments