PSD2 and Open Banking have paved the way for a new payment method: Payment Initiation Services (PIS). Through its speed and ease, it will transform the way people experience making online payments.
PIS is like a bank transfer, but better: initiated by trusted merchants, seamlessly integrated into the purchasing experience, and redirected to a trusted bank environment. Customers can approve the payment with only a few clicks, without even sharing any of their valuable financial information. This gives PIS an unprecedented ease of use and trustworthiness that can change the payments industry from the inside out.
How we think determines how we pay
Psychology has always played a big part in the payments industry in Europe and the UK, the regions where PIS is now available. Take the preference for credit cards, for example. In the UK, there’s almost one credit card per citizen and people carry roughly £1050 worth of credit card debt. In contrast, continental Europe averages only one credit card for every two citizens. Tolerance for credit card debt varies: in France, it’s around €300 and in Germany it’s only €50.
Mindset also determines how consumers judge what’s risky and what’s not. In continental Europe, consumers are more worried about credit card fraud – although fraud risk is actually higher in the UK, simply because the credit card market share is bigger. Still, that worry translates to a fertile ground for alternate paying methods in Europe, where consumers have embraced methods such as PayPal, Klarna, iDEAL, Sofort, and many more.
Unique psychology of PIS
PIS has the potential to be a big hit among consumers because of how it works.
- Let’s say Ben is shopping for his next laptop online, and he’s ready to start payment
- He selects PIS from the payment options offered by the merchant
- Without leaving the page, Ben then seamlessly signs into his bank account
- The merchant has already pre-filled the order amount and description, so all Ben has to do is approve the payment
- And voilà, Ben can look forward to receiving his new laptop within the next couple of days
The heart of the payment method is the reassuring presence of the customer’s own bank. And the strong payment flow means that it’s consistently easy to say yes to the next step. This combination may soon result in a strong customer preference, which means that merchants who offer PIS as payment method have an advantage over those who don’t.
Fortunately, PIS also has a number of excellent benefits for merchants. Because of its fixed-fee structure, PIS is an affordable payment method for any purchase above €15 – compared to the percentage fees of credit cards and other payment methods. Sectors with high-value transactions, such as luxury goods and electronics, can benefit in particular, thanks to PIS’ low payment costs.
That means it would be a real win-win situation for customers and merchants if PIS became the preferred alternative to credit card. Let’s hope PIS soon changes how we all think about paying.
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