PSD2 stands for the second Payment Services Directive, designed by the countries of the European Union. It was created to regulate payment services and providers throughout the EU. The directive came into play January 2018, bringing in new laws to improve consumer rights.
What is it?
PSD2 followed on from the original Payment Services Directive (PSD) which was adopted and implemented in 2007. It completely revolutionised the payment industry, changing everything from the information we see when making an online payment to how we make a payment. PSD was established in the EU market to encourage the creation of safer, more innovative payment services.
The directive also aimed to make cross-border payments as easy, secure and efficient as possible within the EU. PSD2 builds off this by increasing consumer rights in areas such as new rules, complaints handling and currency conversions. It also wanted to create the enablement of third-party access to account information to provide a framework for account services and new payments.
What role does it play?
PSD2 has improved customer rights, reduced fraud, enhanced security and allowed for open banking. But how exactly?
The directive makes sure payment providers resolve complaints in a timely manner. It states that all payment providers in the EU must reply to customer complaints if they are associated with loss of funds within 15 days.
Transparency is another large benefit that PSD2 brings about. The regulation states that all terms and conditions have to be clear and transparent so customers are able to make informed decisions. PSD2 also ensures a greater transparency around exchange rates at the point of sale, which allows customers to know they are choosing the best exchange rates.
PSD2’s Secure Customer Authentications (SCA) introduced a two-factor ID requirement for certain transactions. However, this potentially created additional friction at the checkout so the payments industry made certain exemptions. One of these included online payments and that single transactions must be less than €30, up to a maximum of €100 or five transactions. A transaction can only be exempt from SCA if it’s classed as ‘low risk’, and is subject to certain conditions being met.
PSD2 created the requirement for all of the nine largest banks in the UK to release APIs to enable third-party providers to access accounts and create new independent services. This was created to give customers greater control and visibility over their money.
The majority of the PSD2 requirements came into play in January 2018, with the rest following in September 2018. Not only did it welcome changes to online payments but PSD2 also allows the use of non-transparent pricing methods for all international payments.