What is Payment Initiation Services (PIS)?
Payment Initiation Services (PIS) is an open banking capability introduced under PSD2 in Europe that allows licensed third parties—called Payment Initiation Service Providers (PISPs)—to initiate payments directly from a customer's bank account with their consent.
Unlike traditional card payments where funds flow through card networks (Visa, Mastercard), PIS enables direct bank-to-bank transfers. The customer authenticates with their bank, approves the payment, and funds move directly from their account to the merchant—often settling instantly.
Key PIS Terminology
- PISP — Payment Initiation Service Provider (licensed to initiate payments)
- Pay by Bank — Consumer-facing name for PIS checkout
- A2A Payments — Account-to-Account payments (another name for PIS)
- VRP — Variable Recurring Payments (recurring PIS with flexible amounts)
- SCA — Strong Customer Authentication (2FA required for PIS)
How Payment Initiation Works
The Pay by Bank checkout flow typically completes in under 30 seconds:
Customer Selects Pay by Bank
At checkout, customer chooses 'Pay by Bank', 'Pay from Account', or similar option alongside card payment.
Bank Selection
Customer selects their bank from a list of supported institutions. Major banks in regulated markets are typically supported.
Bank Authentication
Customer is redirected to their banking app or website for Strong Customer Authentication (SCA)—usually biometric or 2FA.
Payment Approval
Customer reviews the pre-filled payment details (amount, recipient) and confirms the transaction.
Instant Confirmation
Merchant receives payment confirmation immediately. Funds settle instantly or same-day depending on the payment rails.
PIS vs Card Payments
Payment Initiation Services offer significant advantages over traditional card payments:
Payment Initiation Use Cases
PIS is particularly valuable for high-value transactions and recurring payments:
E-commerce Checkout
Offer Pay by Bank at checkout for lower fees and instant settlement. Ideal for high-value purchases where card fees are significant.
Variable Recurring Payments
Collect subscriptions, utility bills, or usage-based charges with flexible amounts. VRP replaces rigid direct debits.
Invoice Payments
Embed Pay by Bank buttons in invoices for instant B2B payments. Reduce DSO and improve cash flow.
B2B Payments
Large business payments where card limits are restrictive. Direct bank transfers with automatic reconciliation.
Account Funding
Fund trading accounts, wallets, or savings products instantly. Common in fintech and investment platforms.
Rent & Deposits
Collect rent payments and security deposits via bank transfer. Lower fees for high-value property transactions.
Variable Recurring Payments (VRP)
Variable Recurring Payments are an evolution of PIS that enable recurring payments with variable amounts—without requiring the customer to authenticate each time.
The customer sets up a VRP mandate once, defining maximum payment limits (per transaction, daily, monthly). Within those limits, the merchant can initiate payments automatically. This is perfect for:
- Utilities — Variable monthly bills based on usage
- Subscriptions — Plans with add-ons or usage fees
- Sweeping — Automatically moving money between accounts
- BNPL — Collecting installment payments
- Investments — Regular contributions with variable amounts
VRP Status by Market
- UK: VRP mandated for sweeping (2022), commercial VRP expanding
- EU: PSD3/PSR proposal includes VRP provisions
- Australia: Action initiation under CDR roadmap
- Brazil: Pix Automático launching for recurring payments
Payment Initiation Providers
Leading PISPs offering Pay by Bank solutions:
Implementing Pay by Bank
To add Pay by Bank to your checkout:
1. Choose a PISP Provider
Select based on geographic coverage, bank connections, and features. Consider:
- Which countries/banks do you need to support?
- Do you need VRP (recurring payments)?
- What's your transaction volume and fee structure?
- Do you need white-label or embedded checkout?
2. Integrate the API
Most providers offer SDKs and drop-in components. Typical integration involves creating a payment intent, redirecting to the bank selection UI, handling the callback, and confirming payment status.
3. Add to Checkout
Display Pay by Bank alongside card options. Best practices include clear branding, showing bank logos, and highlighting benefits ("Instant payment", "No card needed").
Payment Initiation Services FAQ
Payment Initiation Services (PIS) is an open banking capability that allows authorized third parties (PISPs) to initiate payments directly from a user's bank account. Under PSD2 in Europe, banks must provide APIs that enable PISPs to trigger payments with the user's consent. This powers 'Pay by Bank' checkout options that bypass card networks entirely.
Pay by Bank is a payment method that lets customers pay directly from their bank account at checkout, without using cards. The customer selects their bank, authenticates via their banking app (using Strong Customer Authentication), and the payment is initiated instantly. Benefits include lower merchant fees (0.1-0.5% vs 1.5-3% for cards), instant settlement, and reduced fraud.
Payment Initiation works in 4 steps: 1) Customer selects 'Pay by Bank' at checkout, 2) Customer chooses their bank from a list, 3) Customer is redirected to their bank to authenticate and approve the payment, 4) Payment is initiated and merchant receives confirmation. The entire process typically takes under 30 seconds.
Variable Recurring Payments (VRP) are an evolution of PIS that allow pre-authorized recurring payments with variable amounts. Unlike traditional direct debits with fixed amounts, VRPs let merchants charge different amounts each cycle within agreed limits. This is ideal for utilities, subscriptions with usage-based billing, and 'sweeping' money between accounts.
PIS offers several advantages over cards: Lower fees (0.1-0.5% vs 1.5-3% for cards), instant settlement (vs 2-3 days for cards), no chargebacks (payments are push-based and authenticated), reduced fraud (bank-level authentication), no card data to store (reduced PCI scope), and higher authorization rates (no expired cards or insufficient funds surprises).
Leading Payment Initiation Service Providers include: TrueLayer (UK/EU specialist), Volt (global coverage), GoCardless (bank payments platform), Token (enterprise PIS), Yapily (UK/EU), Tink (Visa-owned, European leader), Plaid (expanding into payments), and Stripe (via Financial Connections). Provider choice depends on geographic coverage and features needed.
Ready to Accept Pay by Bank?
Compare PIS providers, view bank coverage, and start accepting instant bank payments.