What will the second Payment Services Directive bring about?
For Latvijas Banka Monthly Newsletter, In Focus, December, 2017
The first Payment Services Directive (PSD) was approved in 2007 with a view to create a single European payment market. The Directive laid down uniform provisions for electronic payments in all EU Member States. 10 years have passed since then, and the digitalisation of the European economy has made significant progress. Technologies have evolved considerably during this time, and new participants offering a range of innovative services have entered the market, with many of them currently subject to no regulation whatsoever.
The second Payment Services Directive (PSD2) lays down that strong customer authentication shall be ensured in all electronic transactions. This means that two or more independent security elements shall be applied when using payment services, inter alia, when confirming payment transactions. Moreover, one of these elements should be non-reusable and non-replicable.
The Directive defines new payment service providers who will have to receive a licence in order to be allowed to work in the entire EU.
PSD2 will establish two types of new services in the financial sector: payment initiation service and account information service.
The payment initiation service is a service whereby an institution not holding a customer's account obtains access, with the customer's permission, to the customer's payment account opened with a bank to make transfers on the customer's behalf. For example, when making purchases online, the customer will no longer have to use the internet banking services of the respective bank, since e-merchants will be able to receive payments via the new service provider directly from the customer's account opened with any bank. This service will make online shopping easier both for customers and businesses who will now be able to conclude only one contract with a payment initiation service provider, ensuring payments by customers of any EU bank. The account information service will allow users to promptly receive consolidated information on all their accounts and balances, thereby providing better means of financial planning. Accessing a customer's accounts, the service providers will be able to provide consolidated information on all of the customer's accounts opened with different institutions.
One purpose of the Directive is to open up the payments market for new entrants, in other words, ensuring equal conditions for all payment market participants, including the new participants entering the payment market with innovative solutions. In addition it enables bank customers to use the solutions of innovative service providers, as well as it secures safer payments, improves consumer protection and facilitates innovation and competition.