What is PSD2: a step forward towards open banking

The introduction of this new regulation is a great step forward towards a more open and collaborative financial ecosystem. You may want to know what the changes are right away, but before getting to the details, we will say a few words about the old regulation, the PSD (Payments Service Directive), and what drove the European Commission to transition to the PSD2. Then the reason for this decision and the relative changes will be much clearer to you.

So let’s begin from the PSD, or the European regulation introduced in 2009 to govern payments inside the EU. The objective was to increase pan-European competition as well as the protection of consumer security.

In just a few years’ time, the payments sector experienced a very rapid evolution. We are referring to technological advances in areas such as the cloud and the mobile world, where new applications opened up the banking sector to new competitors. And what can we say about the surge in online shopping? Aside from its countless advantages, it also entailed an increase in cyber crime, linked to data theft as well as credit card fraud. And it is precisely within this scenario that Europe decided to implement the PSD2, with a view to encouraging competition amongst financial providers while also increasing consumer protection.

In 2013, the European Commission therefore proposed a revision of the PSD to modernise it and regulate new payment types. The PSD2 officially entered into force on 13 January 2018, but the date that you should remember is 14 September 2019. Indeed, it is by this deadline that all companies involved in the financial and payment processes subject to the regulation will need to comply with the technical standards (RTS – Regulatory Technical Standards).

Now let’s get to the question you are all asking: what will change with the PSD2? Stay with us and we will explain everything.

What will change?

We’ll provide you with a list of the main changes that will take place with the introduction of the new regulation. If you want to see all of the details about the changes, click on the links.

The PSD2 requires companies to deal with the topic of security in a new way. To handle the increase in risks for consumers, SCA (Strong Customer Authentication) was introduced, which will considerably improve the protection of transactions and will work alongside the implementation of 3DS 2.0, which will replace the current 3DS. Both of these measures must be adopted by law.

To find all of the information about SCA and 3DS 2.0, click HERE.

The PSD2 offers consumers more choices, including for the use of non-banking services to make payments. We are speaking of third-party services (TPP – Third Party Provider), for which the new regulation calls for the entry of two new types of providers: PISP (Payment Initiation Service Providers) and AISP (Account Information Service Providers). Another revolutionary aspect will be access to customer data by third-party companies which, thanks to the introduction of the AISP, will favour the development of Big Data platforms.

To find all the details about these new providers, click HERE.

The future of the PSD2

We have seen why the European Commission wanted to amend the old PSD and the various changes that will come with the introduction of the new PSD2 regulation.

The PSD2 will very likely be beneficial for the world of Ecommerce, as it will provide customers with more flexible banking and payment options. On the other hand, merchants will be able to, for example, use an AISP to obtain more information about potential customers (like their bank balance and payment flows) and exploit this data to conduct risk assessments, or identify their most important customers so they can focus on them. Obviously, they will need to obtain customer consent to save this personal information and revise their processes to ensure that they meet legal standards.

There is naturally a lot of work to do to come into compliance with this regulation, since merchants will need to change their systems to be able to manage 3DS 2.0 and SCA, as starting from 14 September 2019 all transactions that do not meet these requirements may be denied by the purchaser’s bank.