Payment Initiation Service (PIS)
A payment initiation service instructs a payment from a customer's own bank account on their instruction. PSD2 requires that the provider must not hold the payer's funds at any time in connection with the service — which is the whole distinction between a PISP and a firm that handles money.
Also called: payment initiation service provider · PISP
Article 4(15) of PSD2 defines a payment initiation service as “a service to initiate a payment order at the request of the payment service user with respect to a payment account held at another payment service provider”. The customer authorises the payment with their own bank’s credentials and strong customer authentication; the PISP passes the instruction; the money goes from the customer’s account to the payee’s without passing through the PISP at all.
Article 66(3)(a) puts that in terms: a payment initiation service provider shall “not hold at any time the payer’s funds in connection with the provision of the payment initiation service”. The same article prohibits it from storing sensitive payment data, from requesting data it does not need, and from modifying the amount, the payee or any other feature of the transaction.
Commercially the appeal is account-to-account payment that avoids card economics and card chargebacks: the merchant is paid by bank transfer, initiated inside the checkout. PISP authorisation in the EEA is a lighter regime than full payment institution authorisation for precisely the reason above — a firm that never holds funds presents a different risk — and it can be passported across the EEA.
In practice
A firm that takes possession of the funds, even briefly, is not providing a payment initiation service within Article 66 — it is doing something else that needs a permission allowing it to hold client money. Many products marketed as "open banking payments" combine initiation with a collection account, and that combination changes the authorisation required.
Example
A customer pays a utility bill from a merchant's checkout using their banking app. The utility is credited directly from the customer's account. The PISP saw the instruction and the confirmation, and at no point had the money.
Commonly confused with
| Term | How it differs |
|---|---|
| Account Information Service | An AISP reads account data and initiates nothing. A PISP initiates payments and, done properly, stores no data it does not need. |
| Payment Institution | A payment institution may hold client funds and execute payment transactions on its own account structures. A PISP is authorised for initiation specifically and may not hold funds. |
| Direct debit | A direct debit is a mandate letting the payee pull funds repeatedly. Payment initiation is a push, authorised by the payer each time. |
See also
- Account Information ServiceAn account information service is a regulated open banking service that reads a customer's payment account data, with their consent, and presents it back to them. PSD2 defines it as an online service providing consolidated information on one or more payment accounts. It reads; it cannot move money.
- Open BankingOpen banking is regulated access to bank account data and to payment initiation through APIs, with the account holder’s consent. In the European Union and the United Kingdom it is a licensed activity under payment services law, not a private arrangement between a fintech and a bank.
- PSD2PSD2, the Second Payment Services Directive, is the EU law governing payment services. It sets the authorization categories for payment firms, opened bank account access to licensed third parties, and required strong customer authentication for electronic payments.
- Strong Customer AuthenticationStrong customer authentication is the PSD2 requirement to verify a payer using two independent factors drawn from knowledge, possession and inherence. It applies to electronic payments and account access in the EEA, subject to a defined set of exemptions — and the exemptions are where the work is.
- Payment InstitutionA payment institution is a firm authorized in the United Kingdom or a European Union member state to provide payment services — transfers, acquiring, remittance, payment initiation — but not to issue electronic money. It may hold customer funds in payment accounts used only for payment transactions; those funds are neither deposits nor e-money.
- European Economic AreaThe European Economic Area is the EU's 27 member states plus Iceland, Liechtenstein and Norway. It is the area across which a payment or e-money authorisation can be passported — which is why it, rather than the EU, is usually the right boundary in a licensing conversation.
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Regulatory information checked: 23/Sep/2026