Opinion: Unpacking PSD2 - What does it mean for your business?
We examine the implications of the important new legislation, explaining how it will impact your business.
The new Payment Services Directive (PSD2) is a piece of legislation that tightens the rules around the sending and receiving of money by payment service providers (PSPs). It does, however, have far-reaching effects that will be felt throughout the market – and businesses need to be aware of these, as they may need to make significant changes to accommodate the new legislation.
Transparency, efficiency and integration – the impact of PSD2
Of significance to most businesses are a number of changes introduced by PSD2 that push for greater market efficiency and integration.
Firstly, the directive acknowledges increased demand for transparency regarding the costs and fees involved in international transfers and payments from. All PSPs operating in Europe must provide clear and accurate information on any charges incurred by both national and international payments. This should, in theory, make it easier for consumers and businesses to calculate the cost of international transactions, facilitating overseas trading.
These changes bring this area of the financial sector in line with other areas of service, which are already expected to make all costs and charges clear and transparent at the point of purchase.
Secondly, significant changes have been made to way PSPs handle complaints, as PSD2 pushes standardised complaint handling across the European Economic Area. PSPs must put in place dispute resolution procedures and must respond to payment complaints in 15 days, with the final deadline for extreme cases being 35 days.
This is good news for other businesses and consumers alike – in the event that an error directs funds to the wrong recipient, it should now be significantly quicker to rectify any mistakes. PSD2 represents an acknowledgement of the commonly held consensus on a need for greater transparency and efficiency in correcting payment errors – meaning that businesses should no longer have to report experiencing (sometimes significant) delays resulting from transactional errors!
Growth and innovation
PSD2 opens the doors to a wider range of financial services, encouraging the emergence of new market forces and a greater spectrum of competition – good news for those with an interest in the market.
PSD2 aims to enable a more open and transparent banking service. Alongside the Government’s Open Banking initiative, consumers will have more control over their data, allowing them to consolidate information from multiple accounts. In addition, consumers should be able to give permission to third-party organisations to access their information – to analyse their outgoings and organise their budget, for example. These changes pave the way for new tech solutions engineered to reform the way in which consumers manage their finances, opening up exciting opportunities for new and established businesses within the financial sector.
The demand for enhanced security (namely strong customer authentication for electronic payments) may prove difficult for all PSPs to implement. The Directive requires PSPs to demand additional confirmation steps from consumers, such as passwords, one-time codes, or fingerprints/facial recognition scans. While these measures encourage secure transactions, they nevertheless present a barrier to consumers, who are less likely to follow a transaction through to completion when confronted by increased friction.
PSD2 represents the first in what is likely to be a series of significant changes to the financial payment infrastructure. As tech solutions continue to influence the way we think about money, the impact of these changes will become increasingly evident – and we’ll keep you informed of any new developments as and when they happen.