Why Everyone Is Talking About PSD2 Compliance Solution Right Now

The Payment Services Directive 2 is a set of laws that the European Union has recently passed to regulate payment services and processors. It is also known as PSD2.

The Payment Service Directive 2 went into effect in September 2018. Its goal is to make digital banking safer for customers and more efficient. Even though the PSD2 compliance solution comes under European law, it is likely to have a significant impact on the financial services industry all over the world.

PSD2: What Does It Mean?

PSD2 encourages innovation and protects consumers through the laid down rules. PSD2 will change two things: how customers are identified and how easy it is for third parties to access customer accounts. As a result of the rule, multi-factor authentication for online transactions will have to meet stricter standards (MFA). Customers may get better service and more unique features from third-party services due to an API that will let them access their accounts with their permission.

Key Points of the PSD2 

The most significant changes in the payments industry that PSD2′s implementation in 2019 has brought about are due to two main factors: 

SCA 

Payment Service Directive 2 says that all e-commerce transactions with banks in some areas must use “Strong Customer Authentication” (SCA). 

Before a payment can be processed, a cardholder who uses 3D Secure must verify more information than just the usual credit card information (like the card number, CVV code, etc.) 

The specifics of how SCA is put into practice might vary. 

Institutions can choose the authentication structure for these additional facts based on their IT resources and setup. The customer can either sign in with an account they already have or enter a code sent to their phone via text message. 

External Payment Processing Companies 

The PSD2 has also significantly affected the payments industry because it requires banks to let third-party providers(TPPs) use their payment services.

Payment Initiation Services, which are third-party businesses that let people use their bank accounts for online transactions, and Account Information Services, which put all of a customer’s financial information in one place to give them a complete picture of their finances, both grew a lot, which added to the overall trend. 

The PSD2 removes significant obstacles that have kept TPPs from being able to help in these large parts of the EU until now. 

With the implementation of PSD2, TPPs will be in an excellent position to create cutting-edge financial solutions for large businesses in the European Economic Area. 

By giving TPP access to customer account information, PSD2 broke the banks’ and state banks’ monopoly on payment services. This made it possible for more online companies to offer payment services. 

PSD2 Compliance Solution 

In a nutshell, you need to follow the SCA rules if you want to be PSD2 compliant. 

A company must use a CDS authentication pipeline to check customers’ identity and credit card information when they buy something online. 

If the online store doesn’t add these authentication steps to the checkout process, payments for transactions covered by PSD2 will be turned down.

Rules and requirements for complying with PSD2 

Under PSD2, companies must ensure that their customers’ interactions with their accounts, such as API access by third parties, are safer. 

Open API for Access by Third Parties 

The most crucial technology for PSD2 is an application programming interface (API) that gives account information service providers (AISPs) access when a client asks for it. 

Authentication using Multiple Factors for Security 

Multi-factor or at least two-factor authentication for user login is another vital part of PSD2 for all payment providers and digital banking providers. A personal identification number (PIN), a biometric, or a text message are all common ways to do this. 

Transparency Improved for the Customer 

Under PSD2, businesses must share certain information. The first thing companies can do to be more customer-friendly is to make their terms and conditions easier to understand. They will also have to be more open about their exchange rates when dealing with money. 

Complaints are dealt with quickly. 

PSD2 requires payment service providers to respond quickly to customer complaints. The rule also explains how criminal violations should be reported to EU regulatory agencies, individual consumers, and the proper law enforcement. 

Prohibition of Additional Fees in Some Cases 

Under PSD2, retailers are limited in how and when they can add surcharges. Using a credit or debit card to buy tickets, order food, or get groceries delivered online no longer costs extra to process payments. The ban on surcharges covers both business-to-consumer and business-to-business transactions.

Conclusion

With the help of PSD2, the EU hopes to see more financial innovation and better protection for consumers. Consider operating with an experienced compliance partner to ensure you’ve taken all the steps you need to make sure you’re PSD2 compliant, considering the services you offer and where your customers are.