What is PSD2?

Payment Services Directive 2 (PSD2) issued by the European Banking Authorities (EBA) will open banks’ doors to Third Party Providers. This Directive came into force in January 2016 and the related technical requirements were finalized in February 2017. PSD2 enforced laws will be valid in the EU countries in January 2018, after which, there will be a transition period of one year for implementing the requirements.

After the PSD2 comes into force banks will no longer have exclusive rights to provide account information or payment services to their customers. According to the directive, bank customers can use Third Party Service Providers or competitors for daily transactions, for example, to make a payment or to check their account balance. Furthermore, it will be possible to link accounts of several different banks to one service, which so far was not possible for most customers.

The PSD2 directive will create two new types of Service Providers in the financial industry – providers of payment services and providers of account information services. For example, e-commerce businesses who currently do not have banking licence, will in the future be able to debit payments directly from the customer’s bank account. In addition, a bank or any other company, which is registered as an account information service provider, will be able to combine customer’s account information in several banks in a single view. Combining of account views will provide opportunities to banks’ existing internet applications.

By opening bank interfaces, the European Banking Authority (EBA) aims to intensify the operability of the European internal market. Increased competition will considerably accelerate innovations in the finance sector and provide customers with a wider and better choice of services and products. The aim of the EBA is also to improve the security of payments and provide customers with a more comprehensive protection with regard to purchases in the e-environment. Furthermore, opening up of interfaces will decrease payment costs.

With the PSD2 deadline approaching, banks in Europe are already getting ready for the new competition. Several banks have already opened their interfaces to Third Parties while others promote interface innovations by organising brainstorming events to developers. In Great Britain, the competition and market supervision authority is promoting fast transition to use open interfaces in order to increase competitiveness of British banks. In addition to the interfaces covered by PSD2, banks are opening their interfaces even more widely, to achieve additional business benefits that are enabled by this change.

Although the new competition created by the EBA initiative, will ruin traditional way of earning for banks and change payments landscape, it is also seen as an opportunity. The PSD2 interfaces could also be used for development of additional services together with Third Party Providers, whereas account information can be used for developing better and more personalized services.

The changes brought about by the PSD2 will further accelerate the already ongoing changes in the financial sector. New technologies and innovations as well as the constantly growing expectations of customers force the traditional financial sector players to develop new digital business models. Banking business and the role of the banks as a provider of daily banking services to customers will change significantly with the PSD2. The current approach, where banks themselves, develop all of their products, may become out of date after the PSD2 implementation.

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