PSD2  (Payments Systems Directive 2) is a EU wide regulation that will impact financial institutions already operating within the scope of the Payment Services Directive of 2009, but also extends to operators of e-commerce marketplaces, gift card and loyalty schemes, bill payment service providers, public communication networks, account access services, mobile wallets and parties involved in digital or electronic payments. It will bring about key changes to the European Payments industry including:

  1. Prohibition of card surcharges: Standardisation of different approaches to surcharges on card-based transactions which are currently applied across EU.
  2. Extension of scope: Extension of scope of the PSD beyond Europe and in the definition of a “Payment Institution” (incl. 1-legged transactions whereby at least one of the Account Servicing PSPs on either end of the transaction is located within the EU; all currencies).
  3. Third-party payment initiation: Regulation of Payment InitiationSservice Providers (PISPs). These services allow users to initiate online payments to an e-merchant or other beneficiary directly from the payer’s bank account via the online portal of the PISP. This provides an alternative to the use of payment cards in online transactions.
  4. Third-party account access: Regulation of Account Information Service Providers (AISPs). These services act as aggregators of customer payment account information allowing users to log-in to a single online portal to view all their payment account transaction history and balances.

  5. Security & Authentication: Introduction of new security requirements for electronic payments and account access along with new security challenges relating to AISPs and PISPs, as well as payments services operational risks and incidents monitoring and reporting requirements.

At the core of PSD2 is the need for Account Servicing Payment Service Providers (AS PSPs) to grant Third Party Providers (TPPs) access to their online account/payment services in a regulated and secure way. This includes an ‘Access to Accounts’ (XS2A) rule,  which will force Banks/ PSPs to facilitate secure access via API to their customer accounts and provide account information to third party apps if the account holder wishes to do so. PSD2 XS2A  is an important step  towards Open Banking which will offer tremendous potential for Banks and Financial Institutions to innovate at pace, create new revenue streams and disrupt the disruptors.