June 08, 2021
Mythbusting: consumer protection and PIS payments
The revised payment service directive (PSD2) is quickly transforming the financial services industry, giving consumers more options than ever before for how they pay. The newest choice, payment initiation service (PIS) payments, or bank account-based payments, is gaining steady traction in the UK with one million payments made in February 2021 - compared to 300,000 for all of 2019.
With continued growth, PIS has the potential to change the payments landscape in the UK and EU for the better—but even after five years of safe PIS payments, myths about PIS payments are holding some consumers and merchants back from realising their benefits.
What are PIS payments?
PIS payments are an online service which uses a consumer’s bank account to initiate the transfer of funds, on their behalf with their explicit consent. PIS payments allow people to make online payments, open and fund accounts, and pay invoices all from an app or website in a way that is easy, convenient, and secure.
Do PIS payments offer consumer protection?
Consumer protection was at the heart of PIS development, and is one of PSD2’s core objectives. That means consumers can always seek redress if something goes wrong with their payment, including when:
a payment is made to the wrong recipient (i.e. a wrongly executed transaction); or
a payment is made without the consumer’s explicit consent (i.e. without authorisation).
To exercise these critical rights and protections, consumers should contact their bank as soon as possible and raise a dispute. The bank will then work with the PISP, which is required to have dispute management systems in place in case a consumer is not satisfied with the way their PIS payment was processed, to resolve any harm.
These protections are in place before, during, and after the PIS payment has been made, providing greater protection than with cards, where consumer protections do not come into force until after you have authorised the payment and received your products or services.
Are PISP payments secure?
Yes, PIS payments were developed to be as secure as possible when making payments in person and online. When making a PIS payment, consumers need to strongly authenticate with their bank, most of the time using their fingerprint or faceID. When a consumer strongly authenticates themselves, the bank checks that it is in fact the consumer who “owns” the relevant payment account. Once confirmed, the PISP transaction can go through. Since September 2019, PISP payments in the UK have been required by law to strongly authenticate every payment transaction. Cards on the other hand have just received their second extension, meaning they do not need to strongly authenticate transactions until 14 March 2022. This additional delay means consumers do not benefit from the additional protections of strongly authenticating transactions when using their cards online.
Will my payment details be safe if I use PIS payments?
Yes. Consumer payment detail are not shared with the merchant when making PIS payments. Instead, a payment instruction is shared with the consumer’s bank instructing payment to be made to the merchant. The same cannot be said for cards because they still require consumers to manually input specific details that ultimately get shared with the merchant. Combine that with a lack of strong authentication and it's easy to understand why the amount of card fraud in the SEPA reached €1.80 billion in 2018 alone.
How does open banking work with PIS payments?
As open banking has grown and more consumers use PIS payments, businesses are developing innovative models that allow people to engage with their money on their own terms. We recently announced our partnership with Railsbank that will allow their customers to accept instant bank payments directly within their app and create innovative payments journeys. Partnerships like this open up the opportunity for more consumers to experience the benefits of open banking and specifically the protection and security that comes with PIS payments.
Plaid holds consumer protection at the core of what we do and we actively develop products to help consumers understand and make the most from open banking. Speak to the team to find out how we work with firms to build consumer centric products using open banking to enable the future of payments.