8 Things You Should Know About PSD2

You might have come across the PSD2 policies during the financial dealings in your business. Payment Services Directive 2 (PSD2) seeks to align the payment system’s regulation with the present state of the marketplace. PSD2 has introduced specific security requirements in the initiation and processing of electronic payments. This gives better protection to the financial data of the consumers.

Certain aspects of the PSD2 compliance requirements have changed after the revision of the previous directive. Now the banks and account-holding institutions should be able to provide secure access to their accounts through APIs. This enables the external service providers, also called the Third Party Providers (TPPs), to directly access the information and payment services.

PSD2 is not limited to European banks, and it essentially affects financial institutions globally. Some of the financial sectors that conduct business with banks in the EU or the UK will have to comply with the new rules when selling Europe services.

PSD2 has significantly changed authoritarian dealings in Europe’s financial markets, and it seeks to create safer payments in the financial services market. The European Union implemented this legislation by January 13, 2018. 

This article lists the eight essential things you need to know about PSD2.

• The New Breeds Of Payment Service Provider

Under PSD2, you have two new classes in the payment service provider. Along with the standard banks and building society, PSD2 now recognizes account information service providers (AISPs) and payment initiation service providers (PISPs). A PISP is a service provider who can make a payment transaction on behalf of a customer. It offers various services bill payments and peer-to-peer transfers.

This is achieved by the creation of a software bridge between the user and the merchant accounts. An AISP allows you to access your account information from various bank accounts online or in a mobile application.

• PSD2 Is Applicable Beyond The Boundaries of the EU

Any U.S. business which has an entity in the EU will have to make sure that their European entities are PSD2-compliant and SCA-ready. 

If you are processing a transaction either fully or partially within the EU, you need to be compliant with PSD2. Or else you run the risk of declining authorization rates and cancellation of payments.

• Card Surcharges Are No More

Card surcharge has been banned under PSD2. This has been done to protect the consumers across Europe as the merchants are now prohibited from charging consumers additional fees if they make payments by specific payment methods.

Now, the customers do not have to face hidden fees during transactions. But, only the charges on consumer cards are abolished. Corporate cards are still subjected to surcharges.

• PSD2 Has Stricter Interpretations Of “Commercial Agent” and “Limited Network” Exemptions

Under the revised Payment Services Directive (PSD2), digital marketplaces that handle or control client money will now be strictly interpreted under the regulatory protocols for “Commercial Agent” and “Limited Network” policies. The exemptions to circumvent any issues for licensed payment services providers will be strictly interpreted.

• A New Definition Of “Payment Account”

A payment account under PSD2 is now defined as an “account held by one or more payment service users, which is used to conduct payment transactions”. The payment account may include savings and current accounts or an account that combines savings with mortgage and payment facilities as long as it is used for making payments. 

• PSPs Need to Provide Monthly Account Statements

Payment service providers, also known as merchant service providers or PSPs, will have to “provide” monthly statements to the customers on an essentially durable medium, like paper.

The term like “Provide” implies proactively pushing out information regularly. “Durable medium” suggests an instrument through which payment service user stores the information which can be accessed easily for future reference.

• Organizations Must Notify Customers Of Security Incidents Immediately

Organizations should communicate security alerts to customers as soon as possible. Alerting on social media is not a viable option.

• All Existing e-Money And Payment Services Businesses Need To Be Re-authorized

Most of the firms have not submitted their application forms yet. This puts a lot of pressure on the FCA (Financial Conduct Authority) to process the documents all at once. To ensure that their business continues to operate, compliance personnel should ensure that the applications for re authorization are submitted well within time.

To Conclude:

PSD2 is a European regulation for electronic payment services. The objective of PSD2 is to secure the payments process, hence protecting the right of the consumers. It aims to foster innovation and competition and ensure that the organizations are on the same level, including the new ones.