In the rapidly evolving world of financial technology, secure and reliable payment methods have become the cornerstone of modern transactions. When seeking to understand how this works you will encounter terms like AIS, PIS, XS2A, EBICS, FinTS, or PeSIT-IP. In this article, we aim to shed some light on the technical side of payments, focusing on explaining the basics about EBICS, AIS, PIS and PSD2 – the cutting-edge technologies that are transforming the payments landscape.
Exploring EBICS (Electronic Banking Internet Communication Standard)
EBICS is a widely-used electronic banking communication protocol that enables secure data transmission between companies, banks and financial institutions. EBICS standardizes the format in which transaction data is sent from external clients and apps to a bank and back and also how secure encryption and authentication is realized. It is particularly popular across Europe, especially in Germany, France and Switzerland.
EBICS is known for its robust security features and versatility. It provides comprehensive security measures, with end-to-end encryption and multiple safety layers such as digital signatures and authentication certificates.
Corporate customers and FinTechs who have an EBICS client can connect one or multiple banks at once and efficiently manage payments by automating their workflow. FinTechs are able to create automated processes for large amount of payments and payment data processing.
EBICS was introduced as an extension of the DFÜ Agreement by the German Central Credit Committee, later renamed the German Banking Industry Committee (DK). It was meant to replace the older standard HBCI (today FinTS). EBICS quickly gained traction, leading to its mandatory adoption by German financial institutions from January 1, 2008, fully replacing the previous FTAM variant by the beginning of 2011.
As a result of its widespread adoption and the collaborative efforts of industry leaders across multiple countries, EBICS has since solidified its position as a leading standard in digital banking and has proven to be a driving force for the future of European payment standards, revolutionizing the FinTech sector and shaping the way businesses interact with financial institutions.
EBICS facilitates two crucial payment functionalities:
a. Account Information Service (AIS): AIS allows corporates and FinTech platforms to access real-time account information, transaction history, and balances. By leveraging AIS for their customers, FinTech companies can provide users with a comprehensive view of their finances, aiding in better financial management and decision-making.
b. Payment Initiation Service (PIS): PIS gives the EBICS user the permission to initiate payment orders directly from their accounts. FinTechs can utilize this feature to eliminate the need for intermediaries and enhances the overall payment experience for users.
Understanding PSD2 (Revised Payment Services Directive)
The Revised Payment Services Directive 2, commonly known as PSD2, is a landmark regulation in the European Union (EU). It is not a protocol, but a directive, responsible for regulating rights and obligations of payment services, such as FinTechs and users of these services.
PSD2 enables users to decide for themselves which providers they want to make their account information available to – and banks are obligated to create the technical prerequisites for access in the form of banking APIs. This empowers competition and creates new opportunities for FinTechs.
Key elements of PSD2 include:
a. Access to Account (XS2A): Under PSD2, banks are required to allow banks and third-party providers (such as FinTech companies) access to their customers’ account data through secure APIs. This initiative promotes AIS and PIS services.
b. Strong Customer Authentication (SCA): To ensure enhanced security, PSD2 mandates the implementation of SCA for most electronic payments. SCA involves using at least two out of three authentication factors: knowledge (password), possession (e.g., mobile device), and inherence (biometric data). This protects users from unauthorized access and fraudulent transactions.
Understanding the technical aspects of payments in FinTech is essential for any modern financial institution. By leveraging the power of EBICS and PSD2, FinTech companies can create innovative, secure, and customer-centric payment solutions. As the payments landscape continues to evolve, staying informed about these technologies will enable FinTech businesses to stay competitive and innovative and provide their customers with an unparalleled payment experience.