The Payment Services Directive II – or PSD2 for short – is a European directive aimed at levelling the playing field for payment providers, banks, building societies and more in the world of payments. It is a significant evolution of existing payments regulation and aims to increase competition and enhance customer protection and security.
The new directive is to be adopted as law by member states by 13th January 2018 and, ahead of that, we’ve gone through the small print to produce this brief summary. You can read more about PSD2 on the Financial Conduct Authority’s (FCA) website.
What is PSD2?
PSD2 is a directive adopted by the European Union. In the UK it is implemented through the Payment Services Regulations 2017. PSD2 aims to be applicable to a wider spectrum of payment providers and will be wider reaching than its predecessor: PSD1.
One of the major changes for PSD2 will be the move towards Open Banking. This allows authorised third parties – with consent – to be able to access customer information that was previously only accessible to the banks. Under the new rules, other agents that are part of the payment process (for example, marketplaces or even social media apps) will be able to retrieve account details from the bank itself, making the payment process quicker, simpler and more efficient for consumers.
Why has it been created?
PSD2 aims to ensure that the customer is at the centre of every transaction. While customer charges, fees and costs have, historically, been somewhat opaque and hard to gauge, PSD2 aims to change that, introducing transparency, minimum service requirements and clamping down on complaints procedures and data collection. It should drive down overall costs for payment services.
Writing in City AM, Christopher Woolard, Executive Director of Strategy and Competition at the FCA, outlines what PSD2 could mean for us: “Consumers will be able to pay bills, transfer money, and keep track of their spending using their social media accounts and specialist apps. PSD2 should lead to increased innovation and choice for consumers who will be able to aggregate all their accounts in one place and make online payments without using a credit card and compare products and services more easily.”
Where will PSD2 be enforced?
The PSD2 directive sets out the common legal framework for payments within the European Economic Area (EEA) but that doesn’t mean it will only impact companies that are situated within the EEA. Any firm looking to do business with a customer in the region will have to abide by the rules, regardless of whether the firm is American, Barbadian or Chinese.
When will the directive take effect?
Firms in member states, including the UK, must implement the directive by January 13th 2018 – meaning those who need to implement the new rules need to get their operations into gear.
The FCA expects PSD2 to be maintained in UK law when the country leaves the EU in March 2019 in part because there is considerable support on many sides for opening up the payments market.
Who will be affected by PSD2?
Most directly, payments firms and those who handle the funds between a buyer and seller will be affected. All pre-existing payments institutions and e-money institutions (like WorldFirst), will have to be re-authorised and re-registered with their national regulators (in our case, the FCA).
But consumers will also be affected and should benefit from the changes by taking greater confidence that their payments are being handled safely, effectively and securely and that the charges being levied are clear, fair and transparent. Under the new PSD2 rules the use of opaque pricing methods for cross-border payments within the EEA is prohibited – so you’ll know just how much you’re paying to move your money overseas.
You can read more about PSD2 on the FCA website.