REGULATION AND SECURITY
PSD2
PSD2 stands for the Second Payment Services Directive. It is a European Union’s regulatory framework that enables account aggregation and payment initiation for electronic payment services. It was administered by the European Commission and its goal is to foster innovation in the European payments space as well as make online payments safer and more transparent.
As an authorized Electronic Money Institution regulated by the Bank of Spain, Unnax is licensed to provide payment services in Europe.
Unnax Regulatory Services is a licensed Electronic Money Institution registered with the Bank of Spain, registration number 6719.
Who does it affect?
PSD2 mainly affects banks, but it also affects third-party companies that want to get involved in payments. As such, the main players are banks, PISPs and AISPs.
Banks
PSD2 forces banks to open up their customer data to other licensed providers. In other words, with PSD2 customers can give other companies access to their financial data. But it can’t be with just any company. There are two types of licensed providers:
PISP
PISP stands for Payments Initiation Service Provider: these are third parties that use online banking to push payments. They essentially create an interface that facilitates initiating a payment from a consumer to a merchant’s account.
AISP
AISPs are Account Information Service Providers: these are third parties that collect and store information and can then use this data to help customers manage their money and have a better overview of their finances. They cannot execute payments on behalf of a customer, unless they also possess a PISP license.
What are the objectives of PSD2?
There are two main reasons why PSD2 was put into place:
To foster innovation:
Making consumer data shareable means that customers can switch financial providers and take their data elsewhere. This helps build a more competitive landscape and encourages banks to offer better services and products, as well as level the playing field for payment service providers and third-party innovators.
With products such as account aggregation, for example, customers are able to see all their various financial accounts on one screen, use advanced budgeting apps and make payments from third-party apps.
PSD2 helps democratize financial services by making it a lot easier for third parties to enter the market. Many of these companies create products and apps that are more customer-centric, more intuitive, and meet customers’ needs more effectively.
Transform your business
A big part of PSD2 is the implementation of newer and safer security protocols, the main one being SCA (Strong Customer Authentication) using 3DS2 technology. This new innovation is being put in place to help keep identities secure online, specifically for digital payments.
Another way that PSD2 enables safer payments is through account-to-account payments.
These are payments that bypass card networks and are similar to direct bank transfers. Since they are executed via APIs, payments are therefore a lot more stable and secure than screen scraping or sharing personal details.
Timeline up until now
Here is a brief overview of how PSD2 has evolved in the past few years:
SCA
As mentioned above, SCA is a pillar of the PSD2 initiative. With SCA, digital payments become a lot more secure through two-factor authentication.
That means that every time a customer wants to purchase something online, they need to provide two out of these three:
There are exemptions to these requirements, such as payments under 30€ or repeat direct debits. The main objective of SCA is to help decrease Card Not Present fraud, which has been on the rise since digital payments took off in 2020.
How to implement
If you want to implement and carry out PSD2, where do you begin? There are two main ways to get started:
