Every time you make an online payment, there’s usually a middle layer—card networks, processors, or gateways quietly taking a cut and slowing things down. A payment initiation service changes that. It lets you pay or get paid directly from a bank account, no cards or manual transfers needed.
This approach has moved from a niche option to a fast-growing standard. As of March 2025, around 13.3 million people and businesses in the UK were using open banking enabled products.
At its simplest, a payment initiation service is a regulated way for a third-party provider to start a payment directly from your bank but only with your consent. The transfer happens in real time, the money goes straight from one account to another, and you stay in full control throughout the process.
It’s smoother for customers, cheaper for businesses, and built on the same secure open banking connections trusted by UK banks.
How a Payment Initiation Service Works
The best way to understand how a payment initiation service works is to picture a typical online purchase — say, paying a bill or completing a checkout. Behind the scenes, the process follows a few simple but secure steps.
1. You choose “Pay by Bank” at checkout
Instead of typing in card numbers or logging into a separate banking portal, the user picks the bank they use. This starts the payment flow directly through a regulated provider known as a Payment Initiation Service Provider (PISP).
2. The PISP connects to your bank
Once selected, the PISP securely communicates with your bank using an authorised open banking API. No credentials are shared — only encrypted, permission-based access.
3. You authenticate the payment
The customer confirms the payment using their own banking app or website. This step includes strong customer authentication (often biometrics or PIN) to verify it’s really them.
4. The bank sends the money
After approval, the bank moves the funds straight from the payer’s account to the business’s account. Most transfers happen instantly through the UK’s Faster Payments network.
5. Confirmation is shared instantly
The PISP then confirms that the payment has been initiated successfully, giving both sides peace of mind — no pending card authorisations or settlement delays.
Regulation and Compliance: How Payment Initiation Services Stay Secure
Every payment initiation service operates under strict financial regulations to protect both businesses and customers. In the UK, these rules fall under the open banking framework, which ensures transparency, security, and customer consent at every step.
1. FCA authorisation
Only firms approved or registered by the Financial Conduct Authority (FCA) can offer a payment initiation service. This authorisation confirms that the provider meets all security, data protection, and operational standards required to handle financial transactions safely.
You can verify whether a provider is approved by checking the FCA’s official register — a simple way to confirm legitimacy before integrating their API.
2. Customer consent comes first
A payment initiation service can only move money after the user explicitly allows it. Each transaction requires the customer to authenticate through their own banking app using Strong Customer Authentication (SCA). Without this consent, no transaction can start.
3. Data sharing under open banking rules
Banks and third-party providers communicate through secure, standardised APIs. No passwords or login credentials are ever shared. The customer decides what information is shared and can withdraw access anytime, keeping full control over their account data.
4. Fraud protection and liability
If something goes wrong such as an unauthorised transaction, the customer’s bank is still responsible for resolving the issue and refunding the payer unless there’s clear evidence of fraud or negligence. This framework gives users confidence that their money remains protected.
5. Continuous oversight
All authorised payment initiation service providers are subject to ongoing supervision by the FCA. This includes audits, security reviews, and compliance checks to ensure that operations remain safe, ethical, and reliable as the market evolves.
Real-World Use Cases of Payment Initiation Services
A payment initiation service isn’t just for online shopping. It’s being used across multiple industries to simplify how money moves from collecting bills to automating payouts. Here are some examples that show where it fits in day-to-day operations.
1. E-commerce and retail
Many online stores now offer “Pay by Bank” at checkout. Customers choose their bank, approve the payment in seconds, and funds reach the merchant almost instantly. It cuts out card fees and checkout friction, helping businesses increase conversion rates and get paid faster.
2. Utilities and telecoms
Utility providers are increasingly turning to payment initiation services for bill collections. Instead of processing card payments or setting up direct debits, customers can make one-time bank transfers directly from their account. It’s faster to reconcile and reduces missed or failed payments.
3. Subscription and recurring payments
Platforms with regular billing cycles such as software or membership services use PIS to collect payments in real time. Customers authenticate once, and payments can continue seamlessly using secure standing consent mechanisms.
4. Financial services and lending
Lenders use payment initiation to collect repayments directly from borrowers’ accounts. Since funds move instantly, there’s no waiting for card settlements or manual bank transfers. It also ensures better accuracy and fewer failed transactions during repayment cycles.
5. Payroll and supplier disbursements
Businesses can use a payment initiation service to send out multiple payments in one go for example, processing payroll or vendor payouts. Batch payment features allow money to move efficiently, while instant confirmation makes reconciliation simple for finance teams.
6. Public sector and government services
Some local authorities now use PIS to collect council tax or service payments online. Citizens benefit from quick, direct payments, while councils save on processing fees and administrative time.
Key Challenges and Considerations When Using Payment Initiation Services
A payment initiation service offers faster, cheaper, and more secure payments but like any financial technology, it comes with a few practical challenges businesses should understand before adopting it.
1. Bank coverage and reliability
While most major UK banks now support open banking APIs, not every institution offers the same level of uptime or feature support. Some APIs may occasionally fail or limit advanced use cases like batch or scheduled payments. Choosing a provider with broad and stable bank coverage is crucial for consistent performance.
2. User experience and education
“Pay by Bank” is still new to many customers. Some may hesitate the first time they’re redirected to their banking app to approve a payment. Clear messaging and transparent branding help users feel confident that the process is secure and legitimate.
3. Integration complexity
Even with ready-to-use APIs, integrating a payment initiation service into your existing checkout or accounting system takes planning. You’ll need to align technical workflows, reconciliation processes, and reporting so that the new payment flow fits smoothly into daily operations.
4. Refunds and reversals
Unlike card payments, bank-to-bank transfers don’t support instant chargebacks. While this reduces fraud and disputes, it also means refunds must be handled separately through outbound transfers. Businesses should build a clear process to manage customer refunds when needed.
5. Regulatory upkeep
The open banking ecosystem continues to evolve, and regulations shift accordingly. Businesses using PIS need to stay informed about FCA guidelines, Strong Customer Authentication updates, and security requirements to maintain compliance.
6. Customer support and visibility
Because payments happen in real time, businesses need clear dashboards and alerts to track transaction status. Working with a provider that offers solid reporting and customer support makes troubleshooting much easier.
How You Can Use Finexer to Implement Payment Initiation Services
Adding a payment initiation service doesn’t have to involve months of integration work or compliance headaches. Finexer was built to make that process simple for UK businesses that want secure, instant bank payments without relying on card networks.
Built for the UK market
Finexer connects with 99% of UK banks through regulated open banking APIs. Every transaction happens directly between verified accounts, giving you real-time settlement, predictable costs, and complete transparency.
Fast, guided deployment
Finexer helps your team go live quickly — typically 2–3x faster than the market average. You get hands-on onboarding support that covers technical integration, data validation, and FCA-compliant consent flows from start to finish.
Flexible pricing for every scale
Unlike traditional payment providers that charge fixed fees or minimum commitments, Finexer uses a usage-based pricing model. You pay only for what you use, making it affordable for both startups and large enterprises managing high transaction volumes.
Built-in compliance and security
Finexer’s APIs are fully compliant with the UK’s open banking regulations. Strong Customer Authentication (SCA), encrypted bank connections, and consent-based access are all standard — not add-ons.
Developer-friendly APIs
Whether you’re building an e-commerce checkout, an accounting tool, or a finance platform, Finexer’s developer-first documentation and sandbox environment make it easy to embed payment initiation service capabilities directly into your product.
Ready to put it into practice?
With Finexer, you can start accepting and initiating bank payments through one compliant API. It’s fast to deploy, secure by design, and built specifically for UK businesses that want to simplify payments without extra complexity.
What is a payment initiation service?
A payment initiation service lets a regulated third-party provider initiate a direct bank transfer on behalf of a user with consent through open banking APIs.
How does a payment initiation service differ from card payments?
Unlike card payments, a PIS moves money directly from one bank account to another without card networks or intermediaries, reducing both costs and delays.
Is a payment initiation service secure?
Yes. Every transaction requires Strong Customer Authentication (SCA) and uses bank-grade encryption. Users never share credentials outside their own banking app.
Can businesses integrate a payment initiation service easily?
Yes. With Finexer’s API, businesses can integrate payment initiation features in weeks — gaining instant, compliant bank payments built for the UK market.
Join hundreds of UK businesses already collecting payments through open banking, Stay ahead with Finexer!