Payments Service Directive: PSD2
PSD2, enforced since January 2018, enhances Europe's payment security and competition by mandating customer consent-based data sharing with third-parties and setting strict electronic payment security standards.
What is PSD2?
The Payment Services Directive (PSD2) was implemented to enhance and secure payment services across Europe. Enforced from January 2018, PSD2 aims to increase competition in the payments industry, enhancing customer protection. It mandates financial institutions to give access to their customer's account data to third-party providers (TPPs) after the customer expresses consent, facilitating the development of new payment services. PSD2 also introduces strict security requirements for electronic payments and the protection of financial data.
Key Features of PSD2
PSD2 Regulation explores various facets of financial services compliance:
Open Banking to allow TPP access to bank data
This feature mandates banks to provide Third-Party Providers (TPPs) access to their customers' financial data, given the customers' consent. It paves the way for a more integrated financial ecosystem, where consumers can benefit from personalized financial services, including budgeting, financial management tools, and more competitive payment solutions.
Enhanced Customer Protection with strong customer authentication (SCA)
To increase the security of electronic payments and reduce the risk of fraud, PSD2 introduces strict customer authentication requirements. These requirements ensure that electronic payments are performed with multi-factor authentication, providing an additional layer of security that protects consumers' financial data.
Increased Competition by enabling third-party payment services
By requiring banks to open their payment services to third parties, PSD2 fosters a competitive environment where non-bank financial service providers can offer payment and account services. This competition is intended to lead to better services, lower costs, and innovation in the payments industry.
Stricter Security Requirements for electronic payments
PSD2 sets out higher security standards for electronic payments and the protection of financial data. These include rigorous technical and operational requirements for all parties involved in electronic payments, aiming to ensure the integrity and security of payment services and protect users against fraud and other security risks.
Implications of PSD2
Banks and payment service providers must update their systems to comply with open banking standards, implement customer authentication measures, and ensure the secure processing of payments, requiring new standardised processes that could be automated but at the same time controlled.
.png)
Grand: Enhancing PSD2 Compliance
-p-1080.png)
-p-1080.png)
-p-1080.png)
-p-1080.png)
-p-1080.png)
-p-1080.png)
.png)
How Grand Helps
Each component of Grand.io's GRC software suite is designed to seamlessly align with the PSD2 regulation, targeting critical areas such as transaction security, third-party provider (TPP) access management, customer authentication protocols, and ongoing adjustments to legislative updates.
Frequently Asked Questions
PSD2 (Payment Services Directive 2) is a directive that establishes the rules for payment services within the EU, enhancing competition and innovation in the banking industry by mandating the opening of bank infrastructures to third-party providers (TPPs). It facilitates greater integration of services, ensuring fair access to payment systems and improving consumer protection and security.
PSD2 strengthens consumer protection and security by requiring strong customer authentication for electronic payments and setting clear rules for the liability of unauthorized transactions. It mandates that payment service providers apply measures to safeguard the confidentiality and integrity of users' security credentials and personal data
TPPs are entities authorized to access customer accounts to provide payment services, such as payment initiation and account information services. They must obtain explicit consent from users and adhere to strict data protection and security measures. PSD2 ensures that TPPs can operate without requiring a contractual relationship with banks but must comply with regulatory technical standards for authentication and communication.
Businesses must implement strong customer authentication, enhance data protection practices, and ensure secure communication channels for payment transactions. They need to establish frameworks to manage operational and security risks, report incidents to authorities, and provide statistical data on fraud. Compliance also involves ensuring transparency in payment services and adapting to the open banking environment by integrating with TPPs
