image source: Deutsche Bundesbank
The Payment Services Directive 2 (PSD2) is a European Union directive regulating payment services and providers throughout the EU. Here are the top 5 most essential points from PSD2:
Account Access: PSD2 requires banks to give Third Party Providers (TPPs) access to customers’ payment accounts, with their consent, through Application Programming Interfaces (APIs) to initiate payments and retrieve account information and transaction history. This aims to increase market competition and provide consumers with more payment options.
Strong Customer Authentication (SCA): The PSD2 Directive mandates that customers must provide at least two independent authentication factors when making electronic payments. This aims to increase security for consumers and reduce the risk of fraud.
Transaction Fees: PSD2 limits transaction fees for electronic payments and makes it mandatory for all card payments to be processed under the same interchange fee structure. This aims to reduce costs for merchants and encourage the adoption of electronic payments.
Transparency and Consumer Protection: PSD2 requires payment service providers to disclose all transaction fees and charges to customers and ensure that consumers can dispute unauthorized transactions. This aims to increase transparency and protect consumers’ rights.
Open Banking: PSD2 introduces the concept of Open Banking, which allows TPPs to access banking data, such as account information and transaction history, to provide innovative services. This aims to increase competition, innovation and improve the overall banking experience for consumers.
The PSD 2 Directive has had a significant impact on the financial sector in the European Union. It has introduced new rules to increase competition, enhance consumer protection, and improve payment security. The directive has paved the way for open banking, which has resulted in the development of innovative services and products, such as account aggregation and payment initiation services. The implementation of important customer authentication requirements has increased the security of online payments. The PSD 2 Directive has also introduced new obligations for payment service providers, such as the requirement to provide access to account information and payment initiation services to third-party providers. Overall, the PSD 2 Directive has brought about a significant change in the financial sector in the EU, resulting in increased competition, enhanced consumer protection, and improved payment security.
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