PSD2 explained

Understanding PSD2: Enhancing Security and Innovation in Digital Payments

3 min read · Oct. 30, 2024

Glossary

Origins and History of PSD2
Examples and Use Cases
Career Aspects and Relevance in the Industry
Best Practices and Standards
Related Topics
Conclusion
References

The Revised Payment Services Directive, commonly known as PSD2, is a European Union (EU) regulation that aims to enhance innovation, improve security, and increase competition in the financial services sector. Enforced since January 13, 2018, PSD2 mandates that banks open their payment services and customer data to third-party providers through open APIs. This directive is a significant step towards creating a more integrated and efficient European payments market, fostering transparency, and ensuring robust security measures to protect consumers.

Origins and History of PSD2

PSD2 is the successor to the original Payment Services Directive (PSD1), which was adopted in 2007. PSD1 laid the groundwork for a single European payments market, but as technology evolved, it became clear that further regulation was necessary to address emerging challenges and opportunities. The European Commission proposed PSD2 in 2013, and it was adopted by the European Parliament and the Council of the European Union in 2015. The directive was designed to address the shortcomings of PSD1, particularly in the areas of consumer protection, security, and the rise of FinTech companies.

Examples and Use Cases

PSD2 has paved the way for numerous innovative financial services and products. Some notable examples include:

Open Banking: PSD2 has been instrumental in the development of open banking, where banks provide third-party providers access to customer data, enabling them to offer personalized financial services.
Payment Initiation Services (PIS): These services allow third-party providers to initiate payments on behalf of customers, offering a seamless and secure payment experience.
Account Information Services (AIS): These services enable third-party providers to access and aggregate customer account information from multiple banks, providing users with a comprehensive view of their financial situation.

Career Aspects and Relevance in the Industry

PSD2 has created a wealth of opportunities for professionals in the cybersecurity and financial technology sectors. As banks and financial institutions adapt to the requirements of PSD2, there is a growing demand for experts in areas such as API security, data protection, and Compliance. Professionals with skills in these areas are highly sought after, as they play a crucial role in ensuring that financial services are both innovative and secure.

Best Practices and Standards

To comply with PSD2, financial institutions must adhere to several best practices and standards, including:

Strong Customer Authentication (SCA): PSD2 requires the use of multi-factor authentication to verify the identity of users, enhancing security and reducing fraud.
Open APIs: Banks must implement secure and standardized APIs to facilitate data sharing with third-party providers, ensuring interoperability and security.
Data Protection: Institutions must comply with data protection regulations, such as the General Data Protection Regulation (GDPR), to safeguard customer information.

Open Banking: A system that allows third-party financial service providers to access consumer banking, transaction, and other financial data through APIs.
Fintech: The integration of technology into offerings by financial services companies to improve their use and delivery to consumers.
Cybersecurity in Financial Services: The practice of protecting financial institutions and their customers from cyber threats and data breaches.

Conclusion

PSD2 represents a significant shift in the European financial landscape, promoting innovation, competition, and security. By mandating open banking and enhancing consumer protection, PSD2 has set the stage for a more dynamic and secure financial ecosystem. As the industry continues to evolve, professionals with expertise in PSD2 compliance and cybersecurity will be essential in navigating the challenges and opportunities that lie ahead.