PISP (Payment Initiation Service Provider) is a firm authorised to instruct a customer's bank to send a payment from that customer's online account, at the customer's request, without ever handling the money. Created by PSD2, it sits beside account information services as one of the two regulated open banking activities in the EU and UK. The payer picks their bank, the PISP passes payment details to the bank's API, the bank applies strong customer authentication, and funds move directly to the payee, usually over SEPA Credit Transfer or SEPA Instant. A pure PISP needs €50,000 of initial capital and professional indemnity insurance instead of safeguarding. Payers lose chargeback rights, so disputes fall on the merchant's refund policy.
How does payment initiation work
At checkout the payer selects their bank, the PISP passes the payment details to the bank's API, and the bank applies strong customer authentication in its own app or web flow. Once the payer approves, the bank (the account servicing payment service provider, or ASPSP) executes a credit transfer to the merchant. The PISP receives status information but never holds the funds: they move directly from payer to payee, usually over SEPA Credit Transfer or SEPA Instant in the euro area.
Under PSD2 a bank cannot make access conditional on a separate contract with the PISP; the payer's explicit consent is the legal basis for each initiation.
PISP licence and capital requirements
A firm providing only payment initiation needs €50,000 of initial capital under Article 7 PSD2, against €125,000 for a payment institution offering the full range of payment services. Because a pure PISP holds no client money, it has no safeguarding obligation. In its place it must carry professional indemnity insurance or a comparable guarantee covering its liability to banks and payers for unauthorised or defective payments, with the minimum cover calculated under EBA guidelines from the firm's activity.
PISP vs card payments: a worked example
Illustrative: an online furniture retailer taking €400,000 a month in card payments at a blended 1.6% pays about €6,400 in fees. If 30% of that volume moves to bank payments initiated by a PISP charging a flat €0.25 per payment, on an average basket of €250, the shifted €120,000 is 480 payments costing €120 instead of €1,920 on cards.
The trade-offs are operational. The payer has no chargeback right, so disputes move to the merchant's refund policy; every refund needs a separate outbound transfer; and conversion depends on how smoothly each bank's approval screen works on mobile.
What PSD3 and the PSR change for PISPs
The European Parliament and Council reached provisional agreement on PSD3 and the Payment Services Regulation (PSR) in November 2025, and the Council published the final compromise texts on 23 April 2026. The PSR moves open banking conduct rules into a directly applicable regulation, requires banks to give users a permission dashboard to view and withdraw third-party access, and sets more prescriptive performance standards for bank interfaces. Existing payment institutions, PISPs included, will have to re-apply or demonstrate compliance with PSD3 during a transitional period after it enters into force.
For a buyer, a PISP licence is the cheapest payment authorisation to acquire because it carries no safeguarding exposure, but its value depends on live bank connections across markets, the conversion rate at the bank-approval step, and whether the target already holds wider PI permissions to hold funds or run payouts.