The general move towards conducting business over the internet has created a plethora of opportunities that allow consumers to bank and shop from the comfort of their home. The payment industry has created convenient and secure transaction processes that allow payments to be made over the internet either direct from your bank account (via your internet banking services) or linked to a credit of debit card using the international card payment networks.
In recent years we have seen the introduction of new services provided by third parties that facilitate such payments independently from your bank. These third party payment initiation services providers (PISPs) who include organisations such as Sofort, have become well established in the European market. This is recognised by EU regulators who in order to encourage completion and choice have formalised the right to use such services in the second Payment service Directive (PSD2) due to be transposed into law this year.
PSD2 makes it clear that customers have the right to use PISPs where their payment account is accessible online and where they have given their explicit consent. Equally PISPs have guaranteed access to the technical infrastructure of the payment systems.
It is a key change that should help support the growth in e-commerce and the use of internet and mobile payments.
How do they work?
For e-commerce the PISP would integrate their payment initiation service into a merchant’s online checkout process to enable consumers to choose this as an alternative to say a card payment. It is likely therefore that we will see alternative ‘pay’ buttons appearing on checkout pages alongside the traditional card payment logos.
In most cases the PISP will be initiating a payment straight from the consumer’s bank account, offering an alternative to the established card payment processes that are widely used today. To protect the consumer PISPs accessing the consumer’s bank account are expected to use the same security procedures provided by the bank and are required to identify themselves to the bank each time a payment is requested.
Further consumer protection is provided through the PSD2 which sets liability regimes for PISPs in the event of unauthorised, non-executed, defective or late payments.
How will this impact the Card Networks?
Many see the use of PISPs as a challenge to the dominance of card payments in the e-commerce channels. For the consumer it gives them a further choice to make payments direct from their bank account rather than using a card payment. For e-commerce retailers they provide a further convenient and potentially cheaper means of accepting payments.
It remains to be seen if retailers and consumers will choose to make use of these services. As yet they do not have all of the features of the established card payment mechanism. There are questions about how such services will handle disputed transactions in the absence of an established chargeback process and further questions about the levels of consumer protection when compared to those already baked into the card systems.
From a payment industry point of view the addition of another method of making online payments is a good thing. It adds to the menu of options we offer to our customers. It seems likely that they will co-exist as an alternative to card payments and in the end it will be the consumer that chooses the way they want to pay.
David Baker is the Head of Card Payment Innovation at The UK Cards Association.