PSD2 directive. What is it?
PSD2 – Payment Services Directive 2015/2366 is the second payment services directive to replace the first 2007/64 / EC. The Directive on payment services in the internal market was adopted on 25 November 2015 by the European Parliament and the Council. Its provisions are aimed at harmonizing relations in the market of payment services, obliges to obtain a license to provide financial services, regulates the rights of consumers, users and providers of payment services, and also consolidates and ensures the security of electronic transactions. This is a legal act that at least representatives of financial institutions and lawyers need to know.
The main purpose of PSD2 directive is aimed at:
- Improved authentication (SCA), which is focused on reducing fraud and is necessary for all transactions of European commerce;
- The emergence of third-party regulated service providers has begun to increase competition and stimulate innovation in the financial sector.
Two-factor client authentication
The task of reliable authentication is to reduce fraud and payment fraud, all for the convenience of the client and minimal impact on his experience in the transfer process.
As for two-factor authentication, it is a method of access control by which customers must provide two types of information, for example: knowledge is a PIN code – information that the client knows and biometric data – fingerprint, face recognition, etc.
The industry protocol is 3DC (3D Secure), which is the software that enables the authentication process (fingerprint, face recognition) and makes the transfer process more convenient through Apple Pay and Google Pay digital wallets. However, some transactions do not require such authentication, it is a low-cost payment, recurring payment, and the customer can cancel the authentication process, noting the exceptions in the settings.
Emergence of third-party providers (TPPs)
Two new regulated entities are emerging under PSD2 directive:
- Payment Initiation Service Providers (PISP). PISP offers payment flexibility for customers and allows third-party transactions on behalf of the consumer;
- Account Information Service Providers (AISP) allow third parties to access consumer information and account information. This service helps to collect data from several accounts in one application and view your financial balance.
TEC support is a radical change in Fintech. TEC is about convenience, centralization of information and enhanced control for consumers.
So PSD2 is the most discussed topic for the banking industry, which is a paradigm shift for banks in the payment business.
Our consulting team monitors the level of authorization and fraud for all our clients, warns them of any potential problems, and helps to find solutions.