All about PSD2

There has been a great deal of buzz regarding the PSD2 lately. It is a revision of the Payment Services Directive regulated by the European Union in an attempt to manage payment service providers throughout the EU. The PSD2 replaced the Payment Services Directive that was initially enforced in 2008. The aim of this directive is to promote more engagement in the payment industry while protecting the rights of the consumers and providers in the payment service industry. The ultimate purpose behind this directive is increased competition and more security for customers and players in the payment industry. Providing a better value to customers along with the extraordinary liberty of using financial services in this age of ‘open banking’ system will always be the primary goal of implementing such regulations.

In order to provide more financial freedom and options on how customers would want to manage their money, PSD2 introduced two kinds of authorised payment institutions, also known as third party payment services (TPPs) called Account Information Service Provider (AISP) and Payment Initiation Service Provider (PISP). While AISP provided information on available balance in the accounts the users held, PISP helped initiate payment orders at the user’s request. This directive will be providing more services than its predecessor by using latest technology, stronger security measures and a protected environment for electronic transactions.

PSD2 enabled all banks, financial institutions, merchants and insurance companies to become TPPs as per their regulations if they get either AISP or PISP licenses for their company. This paves way for more services using advanced technology. For example, banks could use application program interface (APIs) to provide customers with information about their accounts, spending behaviour etc. Banks or financial companies could only gain access to transactions and account information once these licenses are obtained. Getting access to such sensitive and important information essentially means that there will be stricter measures taken and rules to abide by. Some of the strict regulations the PSD2 sets out are in relation to:

• Transparency – A very important factor is that there should be transparency maintained by the TPPs
• Security and Verification – Protection of consumers and their information, is one of the primary duties PSD2 has stated by referring to Strong Customer Authentication (SCA). There should be safe authentication and verification of their information for reducing risks during online transactions.

The PSD2 is a start to revolutionising the payment sphere due to its efforts to manage and reduce risks, fraud and implement more security. The end goal of creating a single unified market for payments by harmonising these regulations and increasing transparency and fair competition is definitely going to benefit both customers and merchants.