The Payment Services Directive 2 (PSD2) is a European Union legislation that regulates payment services within the European Economic Area (EEA). It builds upon the original Payment Services Directive (PSD) and aims to foster innovation, enhance security, and promote competition in the payment industry. PSD2 was implemented to create a more integrated and efficient payments market within the European Union.
Key aspects of the Payment Services Directive 2 (PSD2) legislation include:
1. Open Banking: One of the significant provisions of PSD2 is the introduction of open banking. PSD2 requires banks and other payment service providers to open their customer data and payment infrastructure to authorized third-party providers (TPPs). This enables TPPs to access account information and initiate payment transactions on behalf of customers with their explicit consent. Open banking promotes competition and innovation by allowing new players to offer innovative payment services and solutions.
2. Strong Customer Authentication (SCA): PSD2 mandates the implementation of strong customer authentication for electronic payment transactions. SCA requires at least two independent authentication factors (e.g., password, biometrics, one-time passcode) to ensure secure and authenticated payment transactions. SCA aims to enhance the security of online payments, reduce the risk of fraud, and protect customer information.
3. Account Information Services (AIS): PSD2 allows authorized AIS providers to access and aggregate customer account information from multiple banks or payment accounts with the customer's consent. This enables customers to view their account details, balances, and transaction history from various financial institutions through a single interface or application.
4. Payment Initiation Services (PIS): PSD2 permits authorized PIS providers to initiate payment transactions directly from the customer's payment account, with the customer's consent. This allows customers to make payments to merchants or service providers without having to rely solely on traditional payment methods such as credit or debit cards.
5. Enhanced Security and Fraud Prevention: PSD2 includes provisions to strengthen security measures and fraud prevention in payment transactions. It requires payment service providers to implement robust security measures, risk management systems, and fraud detection mechanisms to protect customer funds and combat fraudulent activities.
6. Customer Protection: PSD2 enhances consumer protection by introducing liability caps for unauthorized transactions and establishing clear dispute resolution processes. It provides customers with stronger rights and mechanisms for resolving payment-related issues, ensuring a higher level of consumer confidence and trust in the payment services market.
PSD2 has had a significant impact on the payments landscape within the European Union by promoting innovation, competition, and security. It aims to create a more level playing field for traditional and new payment service providers while safeguarding customer interests and promoting transparency in the payment industry.