The European Union New Payment Services Directive (PSD2) | PurePay
The European Union New Payment Services Directive (PSD2)

The Payment Services Directive 2 is a European regulation for electronic payment services. It was established to make payments safer in Europe, increase innovation and help banking services adjust to emerging technologies.

It also recognizes and regulates Third-Party Providers (TPPs) to access or aggregate accounts and initiate payment services. This move will shake up the payments market, particularly in the e-commerce space, by encouraging greater competition, transparency, and innovation in payment services.

In short, PSD2 aims at facilitating consumer access to their banking data and driving innovation by encouraging banks to exchange customer data securely with third parties. PurePay is here to give you a brief explanation of everything you need to know about PSD2.

The Strong Consumer Authentication (SCA) requirements for (PSD2)

The other significant development in PSD2 is the introduction of new security requirements known as Strong Customer Authentication (SCA). This involves using two authentication factors for bank operations that were not previously required, including payments and access to accounts online or via apps, as well as a stricter definition of what counts as an authentication factor.

This robust authentication merges something the user knows, such as a password or PIN, with something the user has, such as a code generated by a smartphone app or a biometric identification like a fingerprint check or facial recognition. It will also generate a unique authentication code for each transaction linking the client and the transaction amount.

For instance, customers will notice changes in how they authenticate their online purchases and the verification factors they use. Enhanced authentication level and the written information on the card (card number, expiration date, and CVV) will no longer be a valid factor for authentication.

What are the most significant changes?

The PSD2 is a control system and it blends two types of services: Account Information Services (AIS) and the Payment Initiation Services (PIS), which were already in existence when the first PSD was adopted in 2007.

The Account Information Services (AIS) is the acquisition of information from a customer’s different bank balances from a single platform, allowing customers to have a comprehensive view of their financial status and quickly analyze their expenses and financial needs.

However, in Payment Initiation Services (PIS), other providers facilitate online banking to sort payments online. These services help process a payment from the customer’s account to the vendor’s account by creating an interface between the accounts used to fill the bank transfer (amount of the transaction, account number, message), informing the bank of the transaction. PS2D also enables customers to perform transactions with a third party from a bank’s app using any customer accounts.

Thus far, the Third-Party Payment Services have suffered some setbacks that have hindered it from delivering a large scale solution in the other European Union’s member state. By removing these barriers, greater competition is expected due to new competitors’ arrival and the provision of these services by existing players. In return, the TPPs will have to abide by the same rules as conventional payment service providers: registration, authorization and constituted authorities’ supervision.

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