PSD2 – what is it, and what will change?
PSD2 has been on “everyone’s” tongue in the banking industry the last year or two. A follow-up from the first Payment Services Directive, it aims to change the way retail banking is performed in the EEA.
The Payment Services Directive (PSD) is an EU Directive that was put into force late December 2007, regulating payment services and payment service providers in (European Union) EU and European Economic Area (EEA). The Single Euro Payment Area (SEPA) defines the interoperability of payment products, infrastructure and technical standards, such as ISO 20022, IBAN, BIC, rule books for credit/debit transfers and more.
The PSD provides the legal framework within which all Payment Service Providers (PSPs) must operate. The Directive’s purpose is to increase Pan-European competition and participation in the payments industry. Also from nonbanks, and to provide for a level playing field by harmonizing consumer protection and the rights and obligations for PSPs.
The key changes in PSD2
The Payment Services Directive 2 is designed to make cross-border payments as “easy, efficient and secure as national payments” and improve competition by opening up payment markets to new entrants. In this chapter, a few of the most important changes will be covered.
PSD2 gets increased security rules for consumer authentication, where its goal is to reduce the fraud. All PSPs will be required to apply “Strong Customer Authentication” (two-factor authentication) when someone initiates an electronic payment transaction. Strong Customer Authentication gives consumers and merchants higher protection against fraud by setting higher requirements for user authentication.
The PSD2 seeks to get better protection for the consumers, by no longer allow PSPs to charge payers for making the appropriate notification in the event of loss/ misappropriation of the relevant instrument. PSPs therefore will need to revisit their policies in this respect and adapt them accordingly to follow the new regulation.
Third-Party Providers and XS2A
Third-Party Providers (TPPs) might be the most significant change in the PSD2, where Access to Accounts (XS2A) is introduced. Banks and other financial institution must give certain licensed third-parties Access to Account information. At the same time, they can not treat payments that go through Third-party Service Providers any differently. There are two types of TPPs, the Account Information Service Providers (AISP) and the Payment Initiation Service Provider (PISP). The AISP provides information about your accounts and balances, and the PISP initiate payments without going through the payment networks.
Change with the changes
At MeaWallet, we believe that PSD2 will change retail banking as we know it. It will speed up the digitalization of the banking sector. As a result, new services arising as a result of the new payment directive, the consumers will further increase their demands and requirements from their bank. In a competitive landscape, the winners will be the ones meeting the digitalization up-front with innovative solutions and services. Not the ones clinging on to their legacy.