PSD2, the successor to PSD, is a European directive that promotes open and transparent banking. It is also known as open banking.
The underlying idea of open banking is that an open market creates more competition, choice and innovation. Banks must allow third parties, with customer consent, access to checking accounts. In this way, it is possible for those third parties to develop new services.
A Dutch example of such a new service is Tikkie. PSD2 thus helps develop new, modern payment services. However, developments are slow, partly because banks use a jumble of techniques and practices when it comes to implementing payment initiation. Partly for this reason, the number of payment initiation services is very limited in the Netherlands.
Payment initiation is a payment route, similar to networks such as Visa or Mastercard. Such a route initiates a payment between financial institutions (often: banks). Each route has agreements. For example, a payment via Visa or Mastercard is always reversible (via a reversal). But agreements can differ from route to route. For example, a payment via payment initiation is not reversible. Costs also vary between routes.
At Pay. we expect there to be a handful of major 'routes' in the future, and a large number of smaller alternatives. Payment initiation is certainly one of them as far as we are concerned. Currently in the Netherlands iDEAL is used by many consumers. Also in Belgium, services like Bancontact, Apple Pay via Bancontact and payment via QR code are very popular. At the moment, payment initiation is nowhere near that.
In countries such as Germany, Italy and Spain, payment systems are less advanced. Local brands such as GiroPay and Sofort sometimes already use payment initiation to process payments.... If you offer your services in these countries, payment initiation can be a nice addition to your payment options.
In the Netherlands in March 2019,Rabobank was the first major bank to come out with an API link to allow third-party payment initiation services. Later, ABN AMRO and ING followed by making their own API available. So there is no single IT landscape that a payment service provider can easily tap into.
In addition, banks use different working methods. For example, Bunq asks for an IBAN in advance by default, while Rabobank, ING and ABN AMRO do not. And banks like Knab and Revolut do not supportend-to-end identification ( E2E ID, a way to provide a transaction with a description ortag), while many other banks do. Such differences mean that payment initiation looks slightly different at each bank.
At the European level, theBerlin Group, a collaboration of 26 financial institutions from 10 European countries, is trying to change that. The Berlin Group aims to makeopen banking as accessible as possible by providing a standard framework to which both banks and third parties can easily connect.
iDEAL and Payment initiation are similar, but there are also important differences.
iDEAL is a commercial brand in the Netherlands, but not a technical payment solution. Every iDEAL transaction involves an acquirer who collects the money and investigates in case of problems. iDEAL itself does not facilitate that.
Instead,payment initiation is a technical payment method in which a third party, with the consumer's consent, initiates a payment directly from the consumer's bank account. This is without the intervention of a separate acquirer.
Because Pay itself has an acquirer license, merchants do not notice any difference between iDEAL and payment initiation. With other providers this can differ.
In terms of user experience, Dutch banks have only made minor differences compared to iDEAL, especially for mobile payments. On desktop, those differences are slightly larger: