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How PSD2 can act as the gateway to a new payments era

Daniela Eder, Cash Management Business Development Manager, Treasury Services, BNY Mellon, explains how the EU’s second Payments Service Directive, PSD2, is transforming the payments landscape…

THE payment sector is experiencing rapid change as markets develop, customer needs evolve and technology capabilities advance. Concurrently, legislation must progress in order to remain relevant to the operating environment, and regulators are introducing PSD2 in recognition of the fact that the retail payment market has undergone significant developments since the implementation of PSD1 in 2007.

PSD2 is designed to foster competition and help third party providers, including fintechs, participate in the EU payments market by granting them access to payment account information that previously had been held by banks alone

PSD2 (which commences in January 2018) retains the framework of its predecessor, while also incorporating technological innovation, enhancements and additional protections into law. In doing so, it aims to ensure that digital innovation can be fostered within the market without exposing consumers to new risks. Key changes include extensions to the Directive’s scope in order to strengthen security, and customer authentication requirements for mobile and internet payments. PSD2 also enhances the Directive’s provisions regarding pricing, transparency, data information requirements, rights and obligations of each participant, and now includes payments in all currencies and those where only one payment service provider is located in the European Economic Area (EEA).

A shift in market dynamics

Perhaps most notably, PSD2 is designed to foster competition and help third party providers (TPPs), including fintechs, participate in the EU payments market by granting them access to payment account information that previously had been held by banks alone. Banks will be obligated to allow new entrants to access their customers’ account information online – at the request of customers – through application programming interfaces (APIs), to support payment initiation services provided by those TPPs. The new measures will aim to ensure that all payment service providers active in the EU are subject to supervision and appropriate rules.

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