The PSD2 regulation
The main functions of PSD2:
- It provides the legal foundation for the further development of a better integrated internal market for electronic payments within the EU.
- It puts in place comprehensive rules for payment services*, with the goal of making international payments (within the EU) as easy, efficient and secure as payments within a single country.
- It seeks to open up payment markets to new entrants leading to more competition, greater choice and better prices for consumers.
- It also provides the necessary legal platform for the Single Euro Payments Area (SEPA).
What is SEPA?
SEPA harmonizes the way cashless euro payments are made across Europe. It allows European consumers, businesses and public administrations to make and receive the following types of transactions under the same basic conditions by means of credit transfers, direct debit payments or card payments.
SEPA aims to make cross-border electronic payments in euro as easy as domestic payments.
SEPA covers the whole of the EU. It also applies to payments in euros in other European countries: Iceland, Norway, Switzerland, Liechtenstein, Monaco and San Marino.
The main advantages of SEPA:
- a single system for both domestic and cross-border bank transfers
- allowing cross-border transactions by direct debit, that is to charge directly an account in one country for services provided in another country
- allowing people working or studying in another SEPA country to use an existing account in their home country to receive their salary or pay bills in the new country
- ensuring cheaper, safer and faster cross-border payments and more transparent pricing thanks to the single set of payment schemes and standards
Key points of PSD2:
- It seeks to improve the existing EU rules for electronic payments. It takes into account emerging and innovative payment services, such as internet and mobile payments.
- It sets out rules as too strict security requirements for electronic payments and the protection of consumers’ financial data, guaranteeing safe authentication and reducing the risk of fraud; the transparency of conditions and information requirements for payment services; the rights and obligations of users and providers of payment services.
- The directive is complemented by Regulation (EU) 2015/751 which limits interchange fees charged between banks for card-based transactions. This is expected to drive down the costs for merchants in accepting consumer debit and credit cards.
Why is PSD2 important?
- It establishes a clear and comprehensive set of rules that will apply to existing and new providers of innovative payment services. These rules seek to ensure that these providers can compete on equal terms, leading to greater efficiency, choice, and transparency of payment services, while strengthening consumers’ trust in a harmonized payments market.
- It aims to open up the EU payment market to companies offering consumer- or business-oriented payment services based on access to information about the payment account, particularly:
- account information services which allow a payment service user to have an overview of their financial situation at any time, allowing users to better manage their personal finances;
- payment initiation services which allow consumers to pay via simple credit transfer for their online purchases while providing merchants with the assurance that the payment has been initiated so that goods can be released or services provided without delay.
Practice use of PSD2:
Before the PSD2 came into force consumer in order to buy anything online had to typically enter his/her payment details into the merchants’ website, and the merchant then gets the money from customer’s bank account by way of a few intermediaries.
With PSD2 now there is a possibility for retailers to ‘ask’ consumers for permission to use their bank details. Once the permission is obtained, the retailer will receive the payment directly from consumer’s bank.
The direct connection between retailers and banks will be enabled using Application Programming Interface or APIs.
The use of API’s enables companies (innovative, FinTech companies) to connect to financial institutions directly.
Before the PSD2 in case if a consumer had several accounts with multiple banks – he/she had to access each bank website separately.
Now the PSD2 provides the Account Information Service Provider (AISP), which allows a consumer to view all of his/her multi-bank details in 1 portal.
It means that new providers, not necessarily banks, can consolidate consumer’s accounts information in 1 which offers new cross-selling opportunities for these new providers.
How much does it cost to become a Payment Institution (PI)? — Initial capital requirement.
Article 7 of PSD2 states that:
- The PI provides only the payment service as referred to money remittance services shall have its capital in the amount at least EUR 20 000.
- The PI provides the payment initiation services shall have its capital in the amount at least EUR 50 000.
- The PI provides the Services listed below shall have its capital in the amount at least EUR 125,000.
- enabling cash to be placed on a payment account as well as all the operations required for operating a payment account.
- services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account.
- execution of payment transactions, including transfers of funds on a payment account with the user’s payment service provider or with another payment service provider: (a) execution of direct debits, including one-off direct debits; (b) execution of payment transactions through a payment card or a similar device; (c) execution of credit transfers, including standing orders.
- execution of payment transactions where the funds are covered by a credit line for a payment service user: (a) execution of direct debits, including one-off direct debits; (b) execution of payment transactions through a payment card or a similar device; (c) execution of credit transfers, including standing orders.
- issuing of payment instruments and/or acquiring of payment transactions.
PSD2 strengthens the role of European Banking Authority (EBA).
According to PSD2 the EBA is entitled to:
- develop a publicly accessible central register of authorized payment institutions, which shall be kept up to date by the national authorities;
- assist in resolving disputes between national authorities;
- develop regulatory technical standards on strong customer authentication and secure communication channels with which all payment service providers must comply;
- develop cooperation and information exchange between supervisory authorities.
From when does the PSD2 apply?
It has applied since 12th of January 2016. The EU countries had to incorporate it into national law by 13th of January 2018.
On 13th of January 2018, the PSD became applicable in the whole EU.