November 3rd, 2016
Get Ready for Payment Services Directive 2 (PSD2)
Background
The original Payment Services Directive (PSD) was adopted in 2007 and the revised version, called PSD2, in 2015. PSD created the foundation for Single Euro Payments Area (SEPA) and PSD2 aims to build on the vision of a single payments market in the EU.
Generally, PSD2 has three high-level objectives:
- Open the EU payment market for companies offering consumer or business-oriented payment services based on access to payment accounts. These will be called Payment Initiation Services Providers (PISPs) and Account Information Services Providers (AISPs). This is designed to ensure a level playing field for both existing and new players.
- Enhance consumers’ rights in numerous areas, including reducing the liability for unauthorised payments. This will also codify an unconditional refund right for direct debits in euro. (“no questions asked” refund policies)
- Introduce strict security requirements for the initiation and processing of electronic payments and the protection of consumers’ financial data, as well as introduce standards for strong consumer authentication.
Payment institutions will be able access the same information as credit institutions on an objective, non-discriminatory and proportionate basis. Payment systems will also be more accessible to payment institutions and should the dominance of credit institutions in these schemes.
PSD2 is meant to move on from PSD and is designed to make payments safer, more secure and less expensive. Users of services based on PSD2 will enjoy greater legal and financial protections. It also narrows some of the definitions and exemptions from PSD as it was felt that the competition envisioned for a single payments market was being distorted by the various national implementations.
The official name for PSD2 is Directive 2015/2366/EU. More information can be found here.
Benefits to Businesses and Consumers
The objectives are payment efficiency, innovation and reduced costs. The aim is to create, for payments, a digital single market for businesses and consumers that is more competitive and more secure.
PSD2 aims to standardise, integrate and improve payment efficiency in the European Union. For consumers, there is better protection.
Changing Environment
PSD2 is designed to create a level playing field between payment and credit institutions by opening up access to information and allowing a greater choice of providers. Pricing and security should improve generally across the board in the payments area.
It will also create opportunities for new payment services providers in emerging payment services by opening up the mobile and online payments spaces. Expect to see more competition and innovation in this space.
The Directive allows retailers to request bank details from customers and talk directly to banks using API’s. Retailers will be able to operate without intermediaries whenever customers provide consent.
AISPs, in particular, will allow multi-bank access and enable a single view of financial information. This Single View of Customer approach to financial payments information creates opportunities for new products and services to be developed.
Banks and other providers will be prohibited from restricting access to the relevant payments data to AISPs and PISPs, as long as they are registered and have the customers explicit consent.
PSD2 has been extended territorially so that transactions in any currency where both Payee and Payer in the EU are covered. Also covered now is the “one leg in, one leg out” scenario where the EU portion of the transaction is included where the payment service provider for either the Payer or Payee is outside the EU.
Security and authentication are also defined better and enhanced. The onus will be on the payee or the payees service providers to accept strong authentication or be liable to refund financial damage to the payers service provider.
There are also better controls for consumer protection in terms of faster customer complaints response times, restricted surcharges, lower caps on liability for unauthorised transactions.
Lower prices, better security and new opportunities are going to be key factors in the success of PSD2.
Key dates:
EU deadline for implementation into national laws is 13th January 2018.
Payment institutions already “authorised” under PSD have until 13th July 2018* to prove compliance.
Payment institutions “registered” under PSD have until 13th January 2019* to demonstrate compliance with the revised structure.
*these dates are valid for Ireland, please check your own national dates as they may differ.
