What is PSD2?
The modern payment services market is influenced by many legislative and regulatory acts. However, the biggest influence is exerted by the EU Payment Services Directive PSD2.
What is PSD2 and why does it have such an impact on all financial market participants? What is the PSD2 regulation and why is it needed? You will get the answers to these questions by reading this article.
What PSD2 is and why it is so essential?
PSD2 is an EU directive that has been repeatedly revised and was supposed to be adopted on December 31, 2020. However, it did not happen because many banks were not prepared for such major changes.
According to the new directive, banks, as well as other financial institutions, will have to provide access to the accounts of their clients to PSPs. However, banks will first need to obtain written consent from their customers.
Besides, multi-factor authentication becomes mandatory for successful transactions with the help of payment cards of Europeans. All this is due to the need to increase the security of transactions that are provided online.
After the adoption of this directive to challenge online payments, in particular, transactions on cards that were provided by clients from Europe, it will be necessary to use two-factor authentication. Now in addition to the pin-code, which the user enters, he will receive a unique password on his mobile device, or he will be identified using biometric data. Only after two-factor authentication will a unique code be created for each transaction, linking the client and the amount of the transaction.
However, this rule will have an exception. In particular, transactions with an amount not exceeding 30 euros and recurring transactions where the recipient and the amount will be identical will be exempt from verification.
Does the PSD2 necessary?
Some companies dealing with payments may find the requirements of this directive unnecessary. However, statistics tell a different story. The European Central Bank provided information that over the years and up to 2016 the number of frauds without the mandatory presence of a card has increased significantly. It is said that 73% of all fraud losses related to bank cards were caused by such transactions.
Also, the IT departments of leading companies have repeatedly confirmed the fact that the number of criminal organizations has grown significantly over the past few years. Members of these criminal groups hack into online stores and inject them with malicious scripts. If the user then maintains their data on such a site, they will instantly get to the criminals, and they can easily use them later.
So, we can say that the PSD2 directive is an essential step in the field of payment security, no matter who or how one feels about it.
What about other countries?
The Aite Group, when discussing the prospects for the implementation of the new directive in Europe, wondered whether the new changes will affect fraud rates in other countries around the world, particularly in the USA.
Such a scenario is possible, but at the same time as Europe was working on PSD2, the US was developing the innovative 3DS2 standard, which sets new authentication rules. This standard does not contradict the requirements of PSD2, as it also takes into account one-time passwords and biometric verification. The standard is expected to be adopted not only in Europe, but worldwide.
To adopt the 3DS2 standard there will be no need to make any changes to equipment or incur any additional costs, as it will only be necessary to make adjustments to the software to implement it. These issues will be handled by banks, not merchants. Experts expect that 3DS2 can be rolled out in the U.S. in as little as 3 years.
The bottom line
When online merchants will be actively moving their payment infrastructure to 3DS2 it will encourage all the U.S. banks to adopt the technology as well. Those who fail to do so could be held liable for fraudulent transactions.
Thus, the adoption of PSD2 will be a boon for all parties. Customers will make transactions more securely, while banks and other financial institutions could improve the quality of their services.
And when this directive is adopted, every company accepting payments will be obliged to comply with it. After all, the rules, as you know, must be the same for everyone.
