The modernization of the financial system in Brazil has evolved in leaps and bounds, especially after the Central Bank of Brazil began regulating the market 10 years ago. Today, Open Banking is the most recent movement in this transformation and has created several business opportunities for banks and financial institutions. One of them is the Pisp, introduced in Phase 3 of BACEN's regulation.
This new medium inserts into Open Banking not only banks and fintechs, but also companies that deal with payment transactions, such as shopping and retail apps. In this article, in addition to understanding what Pisp is, you will see how it works in practice.
Pisp stands for Payment Initiation Service Provider. In practice, it is a new means of transaction that enables payment institutions (PIs), acquirers, payment gateways, e-commerces, marketplaces, and delivery apps to execute financial transactions on behalf of the client with the client's consent.
In other words, once recognized and authorized by the Central Bank of Brazil as a Pisp, a payment company is authorized (by means of consent) by the client to initiate a transaction on his or her behalf.
It is worth pointing out that the function of the Pisp (which can also be called Payment Transaction Initiator - ITP) is only to establish the connection between the payer (in this case the user) and the institution providing the customer's account. The money does not pass through the payment initiator on the way between the paying account and the receiving account.
Let's say your messaging app is authorized by the Central Bank to operate as a Pisp (like WhatsApp Pay for example). You then want to give a loan to a friend. After previously setting up a debit card on the platform to use the payment service, you can select the desired amount on the app screen itself and authorize the messaging app to do the transaction for you.
Another more routine example is the delivery application. Instead of entering your credit card into the platform, the app itself could initiate a payment transaction on behalf of the customer in the amount of the order. This instruction will cause the bank holding the delivery app customer's account to transfer the money to the restaurant's account.
It is a payment method that does not depend on any relationship with banks and other financial institutions (such as ATM machines, for example).
It is always worth mentioning that these transactions only happen with the user's consent. Without authorization, there is no movement.
According to information from the Central Bank, the year 2021 closed with more than 120 million Pix users. In December, a time of seasonal growth for commerce, more than R$716 million were recorded in transactions by this means. However, only 17% of this involved customer payments to businesses.
This means that, as popular as the Pix has become among Brazilians, paying the bill with it is still not as common as it seems. A likely reason for this is the number of steps involved in making the transaction:
1) the user receives the key from the recipient or scans the QR Code;
2) the user opens his bank's app;
3) clicks on the Pix option and adds the payee's information;
4) confirms the information and completes the transaction with the password or biometrics
5) Once this is done, the user goes back to the payment screen of the app to check if the payment has been confirmed.
With the app operating as Pisp, the steps are smaller:
1) the user selects Pix as the payment method;
2) you are directed to the payment screen, where you check the information and confirm with a password or biometrics;
3) the confirmation is done on the app's own screen.
Like Pix, Pisp represents another important step in Open Banking, which aims, among other goals, to reduce bureaucratic barriers in the financial field, offer total control of consumers over their shared data, define faster processes and reduced operational costs for institutions.
For the user, the purchase process becomes more agile, simplified and secure when done via the ISPP. For companies, the main benefits are an increase in the sales conversion rate and a reduction in cart abandonment, since the customer will not leave the store's site or app to complete the purchase.
The possibility of becoming a payment transaction initiator represents a great opportunity for many companies, as it facilitates a direct relationship with the customer, without the need for intermediaries, reducing costs and maximizing profits.
According to BCB Resolution No. 80, IPs have a head start to operate as payment transaction initiators, because they can act in more than one service modality, as well as with other activities related to payments or with the services provided to their clients.
But it is not only payment institutions or financial sector players that can become a Pisp. So-called "pure initiators", i.e. companies that are not necessarily in the finance business but which carry out payment transactions, can also join this model. This is the case for delivery apps, stores, etc.
This is a great incentive for these pure startups, after all, because this is an Open Banking movement, all regulated financial institutions and payment institutions that already offer current or payment accounts will have to allow a Pisp to access their domains.
In other words, if a customer of bank X gives consent for the Pisp to initiate the transaction via the running app, the app in question will be allowed to initiate a transfer of funds from bank X.
This innovation movement related to new payment methods is global. According to the 2021 Gartner Financial Services Technology Survey, 22% of respondents working in commercial banks said they had plans to invest in or adopt a new mobile payments technology.
In addition, the survey also showed that 59% of corporate banking respondents said they had plans to upgrade or replace their payments infrastructure - and another 21% said they had plans to adopt or invest in a new payments infrastructure.
The Pisp is yet another link in the changes that have been decentralizing and disintermediating the financial system. It is a strengthening of the system itself, since it fosters the competitiveness of players and a customer centric posture. The result of this will definitely be more innovation and more financial inclusion.