How the Latest Payment Services Directive Affects You
The second Payment Services Directive – also known as PSD2 – becomes UK law on 13 January 2018.
From the name, it’s easy to think it only affects banks.
But hold on! It has implications for YOU.
Here’s a summary of what it’s about, and the main ways it will affect you.
So, what’s PSD2?
The first Payment Services Directive (PSD) from 2009 put in place a legal framework for payments and related services across Europe.
It covered the rights and responsibilities of consumers, users and providers of payment services, and ensured that European countries implemented, and were held to, a uniform set of standards.
PSD2 builds on the success of PSD, and at its core wants to increase competition in the industry while reducing the dominance of banks.
Big banks have traditionally held all the aces when it comes to the business of payments, and when you consider the amount of information they hold on their customers – data is big business, just ask Facebook! – there’s been little incentive for them to innovate what they have on offer. Save for a few companies such as PayPal, Apple and Stripe, few have been able to make even the tiniest dent in the banks’ market share.
Why is this a problem, you ask? It means that you as a consumer don’t have much of a choice. When you look at the UK, there are 4 big banks, with VISA and MasterCard being the two dominant payment card schemes. So where do you go for a truly different sort of service?
Why was PSD2 introduced?
PSD2 is set to become law in the European Economic Area (comprising the 28 EU member states, as well as Norway, Iceland and Liechtenstein) on 13 January 2018, and here are some of the reasons the wheels were set in motion:
- To encourage new players, especially those that are NOT banks, to get into the business of payments.
- To encourage the introduction of new, cutting-edge technology which will revolutionise the way payments happen in Europe.
- As a result of increased competition and technology, the expectation is that the cost of payments will fall. A bonus for consumers!
- To improve security around payment processes, and the way consumer data is handled.
Who is responsible for PSD2?
PSD2 is a directive issued by the European Commission, which becomes national law on 13 January.
How does PSD2 affect you?
Strong Customer Authentication:
You already have many rights when it comes to protection against misuse of your data, and any potential fraud.
PSD2 takes these even further, by mandating that banks and businesses that process payments use what is referred to as strong customer authentication (SCA) for payments.
This means they have to take significant steps to make sure any payment you make is actually coming from – and authorised by – you.
So if you find you’re asked to verify your identity or payment in a different way, don’t be alarmed. It’s all PSD2-related.
PISPs & AISPs
Talking about your data though, in a bid to promote competition and open it up to new organisations, banks could potentially share what they know about you with these new players to the market, who will fall into 2 categories: Payment Initiation Service Providers, and Account Information Service Providers.
Agreeing to use these services could make your online payments simpler and more seamless, and you’ll be better placed to compare what’s available in the marketplace. It also means you could make a payment directly from your bank account without using a debit or credit card, which could save you any card charges and fees.
Don’t worry, your data won’t be shared without your permission! Banks – who as well as being dominant forces in the landscape, are also the largest repositories of consumer data – are required by PSD2 to share this data when you give your permission, as a way of levelling the playing field.
In preparation for PSD2, your bank will have sent the last few years developing technical integrations to make the data sharing process easier. There’s a whole initiative around this within UK banking called Open Banking, and your bank will have already sent you something that looks like this:
PSD2 is also meant to end a practice that’s been a pain for consumers for a long time.
You know when you go into a shop, or book theatre tickets online, and you’re charged an additional percentage for using your credit card?
That practice – known as surcharging – ends with PSD2.
That’s not to say that shops and retailers will take this lying down; it’s hard to know how they will respond. They might swallow the costs, put their prices up across the board (which would affect ALL buyers, not just those using cards), or offer shoppers an incentive to use different ways to pay.
The jury is still out on this one, so keep your eyes peeled to see what happen when you shop after 13 January!
How does PSD2 affect your business?
PSD2 only affects payment institutions, credit institutions, and electronic money institutions.
If this is not your core business, there is no impact.
The only thing to note is that, if you add a surcharge for credit cards when collecting payments, this practice will no longer be allowed.
Will Brexit affect PSD2?
The UK government has confirmed that PSD2 implementation will not be affected by the decision to, or process of, leaving the European Union.
Since that only takes effect in 2019, PSD2 will be fully implemented and transposed into UK law.