PSD2 Regulation: Definition and Implications

The 2nd directive on Payment services or PSD2 regulations is a European Union measure. It was adopted to modernise and secure financial transactions. It is a significant milestone in the evolution of the landscape of online payments.Entered into force in 2019, PSD2 imposes strict standards that aim to strengthen the security of electronic payments. The directive introduces new requirements: SCA strong authentication and the opening of banking information systems or Open Banking. Let's discover together how PSD2 improves the customer experience, fights fraud more effectively, and ensures the transparency of financial data.

Main provisions of the PSD2 regulation

PSD2 introduces several crucial provisions. These aim to modernise and secure online payments within the European Union. Here are the main aspects of this directive.

Strengthening the security of online payments

The DSP2 places particular emphasis on securing electronic transactions. New, more stringent standards are being imposed in order to reduce the risk of fraud and to protect the consumer. These standards include the introduction of strong authentication for online payments.

What is strong SCA authentication?

Strong authentication or SCA for Strong Customer Authentication is one of the pillars of PSD2. It implies that online payments of more than €30 be validated using a double client authentication. Concretely, this means that the consumer must provide at least 2 forms of identification for their online purchases. 3 methods are distinguished to allow identification:

• Know: a password that the user knows
• Own: a secret code sent to a device that the user has
• To be: The customer's fingerprint

Requirements for online transactions

In addition to a strong authentication solution, PSD2 imposes other standards in order to guarantee the security of digital transactions. Among these requirements, we find the prohibition of over-billing practices And the strengthening consumer rights in case of fraudulent payments.

Promoting competition through Open Banking

The PSD2 regulation aims to promote competition and stimulate European innovation around payment services. It succeeds thanks to the implementation of Open Banking.

Open Banking: The openness of banking information systems

Open banking: major innovations introduced by PSD2. This measure allows consumers to share financial information with third party service providers. Thus, account aggregators and payment initiators can have access to customer accounts. However, this requires the explicit consent of the said customer.

For example, a user can allow a third-party application to access their banking data. This allows them to manage their personal data in a more integrated and effective way.

Open-Banking is bringing in new players

Thanks to the opening of banking information systems, new players are appearing on the payments market. These new fintechs and innovative startups exploit access to banking data to offer innovative and competitive services.

Businesses like lydia have been able to develop advanced mobile payment solutions. They offer an alternative to traditional payment methods, while respecting the security and confidentiality standards reinforced by the PSD2.

Data Security Implications

To strengthen the security And the data protection, PSD2 imposes strict standards that we will now focus on.

Increased consumer data protection

Payment service providers must now implement measures to ensure confidentiality and Integrity personal information. In particular, this includes encryption protocols and strengthened security procedures against cyber attacks.

Strengthening standards for the management of financial information

The collection, storage, and processing of financial information must now benefit from increased security. This measure introduced by the PSD2 wants to guarantee the confidentiality and security of remote payments.

Impact of PSD2 on transactions, costs, and compliance

The DSPE is bringing about significant changes in the online payment process. This new directive influences the costs and compliance of transactions in the European Union. Here are the main impacts associated with PSD2.

Complexity and cost of payments

With the implementation of two-factor authentication and the strengthening of security during payment, the associated costs may increase. Following the implementation of PSD2, payment providers must invest in order to maintain their competitive advantage. Such investments may lead to increased costs for merchants and/or for their customers. Indeed, the increased costs for payment providers could be passed on to the fees paid by consumers. That, along with SCA, could change buying behaviors.

Financial and legal penalties provided for by the PSD2 regulation

Businesses that do not meet the security and authentication standards required by PSD2 may face administrative sanctions. These penalties can be in the form of financial: fines; or legal: legal actions. In addition to these legal sanctions, non-compliance with PSD2 standards can damage consumer reputation and trust.

Customer journey and experiences under PSD2

Compliance with PSD2 regulations requires a significant change in customer journeys and the experience offered. These changes want to strengthen the security of online payments, but the end customer experience could be impacted.

Bringing safety and experience together

Increased security standards often mean a deterioration in the customer experience. PSD2 requires such measures. What can we do to continue to provide a pleasant and smooth experience while complying with the law? Here are some effective strategies.

Simplifying the authentication method

The use of tools that facilitate identification brings better fluidity to web and mobile platforms.

Biometric authentication

Biometric authentication via thumbprint or facial recognition reinforces data security while providing a very pleasant user experience.

1-click identification

Developing authentication solutions that require a minimum of user interactions is beneficial to the overall fluidity of the platform. To do this, sending push notifications in order to approve a connection is a viable solution.

The role of PSPs in improving the customer experience

Les payment service providers or PSP also play a crucial role in developing exceptional customer experiences. They provide the tools and support needed to ensure that online payments comply with PSD2 regulations.

Supply of technological solutions in accordance with PSD2

In accordance with PSD2 regulations, PSPs must secure their platforms and access to them. Financial data, bank details and personal data must benefit from a high level of security encryption.

Development of secure payment platforms

The platforms made available by PSPs use safety protocols robust (SSL protocol, encryption of banking information, encryption of data transferred). They protect financial transaction data against the risks of fraud and identity theft.

Innovation in biometric payments and tokenization

By introducing technologies ofbiometric authentication And of Tokenization, PSPs make the payment process more secure -- and more enjoyable. These technologies guarantee users and customers the security of their personal information.

Support for companies in their PSD2 compliance

Consultation and support

PSPs offer consulting services to help businesses understand PSD2. They provide the support needed to identify best practices and appropriate technologies to implement all the measures required by this regulation.

Training and educational resources

In the same way, PSPs provide digital resources to understand the elements required by the 2nd Directive on payment services.