Saudi Arabia’s Open Banking journey continues to push the boundaries of financial innovation. With the successful implementation of Account Information Services (AIS) over the past couple of years, the Kingdom has now entered an exciting new chapter with SAMA’s recent announcement of Payment Initiation Services (PIS) under Phase 2 of the Open Banking framework. By adapting to this new landscape, merchants can expect to achieve improved operational efficiencies, reduced fraud risks, and a more seamless payments experience.
What is Payment Initiation Service (PIS)?
Payment Initiation Services (PIS) enable merchants to accept payments directly from their customers’ bank accounts, which can singlehandedly drive the cost of payment acceptance down while improving the overall experience for merchants and customers alike. This means businesses can transform how they collect payments by removing reliance on traditional methods, such as card payments, Sadad, or manual bank transfers.
How PIS Works in KSA
The PIS framework will be built on top of the existing payment rail in KSA, SARIE, to facilitate real-time fund transfers. By leveraging SARIE, PIS empowers merchants to initiate payments directly from their customers' connected bank accounts to the business’s account in real-time. The introduction of the PIS framework marks a significant advancement in the payments landscape, offering a range of benefits for merchants and their end-users:
Benefits of PIS for Merchants
Faster Transactions
For merchants: PIS enables real-time payments through SARIE, allowing businesses to receive funds almost instantly. This process significantly improves cash flow and operational efficiency.
For end-users: Consumers benefit from real-time payments, allowing for immediate payments, refunds, and withdrawals without delays.
Cost Savings
For merchants: By eliminating traditional payment intermediaries such as card networks, payment gateways, and card issuers, PIS reduces transaction costs. This helps merchants retain more revenue and offer competitive pricing to their end-users.
For end-users: Lower fees on platforms that pass the transaction fees onto the end-user.
Enhanced Security
For merchants: Direct account-to-account transfers through PIS rely on bank-grade security and authentication methodologies that minimize the risk of fraud associated with third-party payment methods. This reduces chargeback costs for merchants, further decreasing their overall payment-acceptance costs.
For end-users: PIS reduces the risk of fraud, as transactions occur directly between accounts without intermediaries.
Improved Payments Experience
For merchants: Implementing a user-friendly payment experience will improve conversion and retention rates for merchants.
For end-users: Merchants will be able to offer their customers with an in-app payment experience, instead of relying on third-party gateways, improving the overall payment experience for end-users.
What Does PIS Mean for KSA Merchants?
The introduction of PIS brings several functionalities for merchants in the Kingdom:
Uses Cases PIS Enables for Merchants
With PIS, a transformation is underway in how payments are processed within everyday apps and platforms. Let’s explore some key use cases that PIS will enable:
Card on file replacement: Merchants will be able to offer end-users the option to pay directly from their bank account, eliminating the need for card details. For instance, when customers book a ride on Uber or Careem, they can complete the payment using their linked bank account with a single authentication, reducing friction and enhancing security.
Account sweeping: Merchants can enable their end-users to set up automated transfers between their accounts with a one time consent. For example, a customer who uses an investment platform can set up a monthly recurring 3,000 Riyal transfer from their bank account to their investment account when their salary is deposited.
Collections: PIS simplifies the entire collections process for recurring payments. Platforms like Tabby or Tamara can instantly set up recurring payments, allowing them to automate the collection of dues from their customers. This ensures timely payments for loans, minimizing delinquency while offering customers a hassle-free, automated experience.
Subscriptions: For businesses offering subscription-based services, PIS simplifies the payment process. With a one-time bank account connection, customers can automatically pay for ongoing services, like gym memberships or Shahid subscriptions.
Invoicing: Merchants can offer one-click payment options for invoices, making it easier for customers to pay their bills using their bank accounts. Whether it’s utility bills for electricity, water, or telco services, PIS allows for seamless payments without the need for external payment gateways.
PIS Success in Brazil
Looking at the global landscape, Brazil serves as a standout example of the positive impact of PIS through its instant payment system, PIX. Launched in 2020 by the Central Bank of Brazil, PIX has revolutionized how businesses and consumers transact, offering instant payments directly between bank accounts without the need for intermediaries like cards or traditional payment processors.
Since its introduction, PIX has seen rapid adoption, with over 133 million users (approximately 62% of Brazil’s population)1 embracing the system. It’s estimated that by 2026, PIX will account for 40% of all online shopping payments in Brazil, further reducing reliance on card networks.2 The shift towards real-time, cost-effective transactions has significantly boosted digital payment adoption across key sectors like retail, e-commerce, and services.
Brazil’s success with PIX highlights how a robust PIS framework can transform the financial ecosystem by improving payment speed, security, and cost efficiency. As Saudi Arabia rolls out PIS under its Open Banking framework, merchants can expect similar benefits, creating a more competitive and seamless payments environment.
Supercharging Payments with Data: How Lean Customers Can Leverage PIS
For merchants already leveraging Lean’s Open Banking solutions, integrating payments into their customer journeys has become easier than ever. Many of Lean’s customers have already enabled their end-users to connect their bank accounts through a simple, one-time consent. With the introduction of the PIS framework, businesses will be able to build on their existing Open Banking setup to implement payments directly from end-users’ bank accounts. This transition is effortless for merchants, as customers have already authenticated their accounts, allowing Open Banking payments to be seamlessly integrated into their workflows.
Let’s take one of Lean’s key customers as an example:
Tamam currently utilizes Lean’s Open Banking service to conduct credit risk scoring and verify customer bank account ownership before disbursing loans. This automation has already helped streamline and automate their account verification process.
With the introduction of the PIS framework, Tamam will be able to elevate its automation capabilities further. Tamam can soon utilize Lean’s Open Banking payments—particularly Fixed Recurring Payments (FRP)—to automate loan collections directly from customer bank accounts. By eliminating reliance on traditional methods like cards or manual transfers, this streamlined process simplifies collections, reduces delays, and enhances the customer experience.
Embracing the Future of Open Banking Payments
As Payment Initiation Services (PIS) roll out across Saudi Arabia, the potential to revolutionize payments is vast. With the ability to facilitate instant payments and reduce costs, the PIS framework empowers merchants to succeed while providing end-users with greater control and peace of mind over their financial activities.
As we look ahead, the rollout of PIS signifies the start of a broader financial evolution in the Kingdom, one that will empower merchants and redefine the payment landscape. Over the next few months, we’ll be sharing detailed guides, industry-specific insights, and a comprehensive white paper that will equip merchants with the knowledge needed to navigate this new chapter in KSA’s financial landscape.
Interested in learning more about how PIS can transform your business? Get in touch by filling in the form below:
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Sources:
- Fintech Nexus. Brazil’s PIX to reach 40% of online shopping by 2026, study shows. (October 11, 2023). Retrieved from Fintech Nexus.
- Fintech Nexus. Brazil’s PIX to reach 40% of online shopping by 2026, study shows. (October 11, 2023). Retrieved from Fintech Nexus.
