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3 things you need to know about PSD2

If 2018 was the year of GDPR, 2019 was the year of PSD2.

Short for Payment Service Directive II, PSD2 is a highly awaited EU directive that will bring some significant changes to the way we build financial services.

Set to revolutionise the financial industry, PSD2 introduces an array of new reforms aimed to increase competition and simplify payments across the European Union.

But. What do you actually need to know about the new EU directive?

Let’s have a look at 3 of the key factors that will change because of PSD2.

1. Goodbye to the banks’ monopoly on financial data

For hundreds of years, banks have been the trusted holder of our money and financial data. But to ensure a competitive and innovative financial sector, the EU has opened the banks’ door to new competitors.

By doing that, all licensed businesses will be able to create new services on top of bank data — and offer new ways to initiate payments.

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But when is all that going to happen?

Well — In reality, it’s already happening. But by September 2019, all European banks must comply with PSD2’s Regulatory Technical Standards, better known as RTS.

The RTS deadline in September is often seen as the final PSD2 deadline, as this is when banks across the EU are required to have implemented their dedicated interfaces (open API) for third parties to use.

2. A win-win for businesses and consumers

So. Why is PSD2 such a big deal?

Because of the increased competition, PSD2 is set to create better and more cost-effective financial solutions for consumers across the EU.

But the new directive will also create some major opportunities for businesses in different industries including accounting, fintech, retail, and finance.

Let’s take a look at an example in retail:

When you’re shopping online, you’re most likely to use a credit card like Visa or Mastercard to pay for your purchases.


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And what’s the problem with that?

Well. The many different fees that are incurred at various stages of the payment system makes it very expensive for the merchants, who are paying a fee every time you use your credit card.

But with new legislation on the market, licensed merchants will be allowed to initiate on behalf of the consumer — and save tons of money on fees.

3. But.. Is it safe?

Allowing third-party businesses to access your financial data might seem scary to some.

To reduce fraud and make financial data safer than ever, PSD2 requires an array of new security measures called SCA.

Short for Strong Customer Authentication, the SCA requirement will demand customers to use at least two of the three authentication measures:

  1. Something the customer knows (password or pin)
  2. Something the customer has (phone or laptop)
  3. Something the customer is (fingerprint or face recognition)

 

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Finally, it’s important to remember that every business that wants to and need the right license from the local financial authority to do so.

Therefore, it’s safe to say that PSD2 will make sure your financial data is safer than ever.