A Guide to PSD2

If you’re an Irish saver who uses online banking regularly and keeps up to date with the latest financial technology (fintech) and legislation developments, you may be familiar with PSD2 or have at least seen or heard “PSD2” mentioned alongside terms such as “open banking”. If you haven’t, don’t worry.  Even if you’re unaware of what PSD2 is, you may have already taken advantage of it without even realising. On this page, we explain what PSD2 legislation is, how it works, its importance and what PSD2 means for open banking.

PSD2 stands for the second Payment Services Directive and is a European regulation for electronic payment services and payment service providers throughout the European Union. 

PSD2 is designed to boost innovation and help banks adapt to new technological developments. It focuses on improving consumer rights, aligning payment services, enhancing security through strong authentication systems and enabling third-party providers, such as budgeting apps and online merchants, to access financial data and offer customers new ways to make transactions and manage finances.

PSD2 was introduced in 2018 to facilitate an integrated and seamless payment experience across EU member states. PSD2 also introduced Strong Customer Authentication (SCA) to enhance secure payments and reduce fraud.

Under the PSD2 directive, banks and other financial institutions throughout the EU are able to utilise application programming interfaces (APIs) for licenced and approved third-party service providers. An API is simply software that allows different systems to talk to each other, allowing a financial institution’s system to quickly and securely connect to a third-party provider’s system and share financial data.

Once a third-party service provider is approved under PSD2 and can comply with its regulations, it can offer a range of financial services that require access to banking information.

PSD2 has three main objectives, which are the following: 

• Better protection for consumers paying online 
• Promoting innovative approaches to online financial services 
• Enabling faster payment services throughout the EU

PSD2 has three security factors and requires payment services and financial institutions to use them to facilitate payments. This is known as ‘multi-factor authentication’. 

The required factors are as follows: 

• Something the cardholderknows, such as a password or pin
• Something the cardholderhas, such as a token or mobile phone
• Something the cardholderis, such as a fingerprint or voicematch 

PSD2 provides the framework through which financial service providers can offer you services, including convenient ways to make online payments, without being redirected to another payment service, such as PayPal. 

If you have more than one bank account, you can allow third parties, such as budgeting apps, to hold and display all your account information in one place.

PSD2 also requires enhanced identity checks, especially for higher value transactions, so your financial data is still secure.

Financial institutions that supply your data and third-party financial service providers must comply with all PSD2 regulations and legislation. This includes having a robust API infrastructure and supporting customer security with strong customer authentication. Banks must also provide customer data in real-time where required. 

PSD2 is a major piece of legislation that affects all EU member countries including Ireland, and is as essential as other regulatory and strategic initiatives.

The implementation of PSD2 is important because of the benefits it could bring to your online financial transactions and experiences. Not only could PSD2 make it easier and quicker for consumers to pay online merchants, but transactions could also be more secure.

Transactions through open banking should be protected against cyber fraud by sophisticated authentication methods. PSD2 requires two-factor authentication, which reduces risk and improves online financial safety.

Additionally, PSD2 facilitates openness to financial data, which is necessary for enabling innovations in the financial services industry. It will lead to enhanced competition, which in turn will provide consumers with more and better financial choices.

PSD2 affects all member countries of the EU as well as those within the European Economic Area and anyone wishing to engage in the European payments market. In terms of the countries that PSD2 applies to, the complete list of countries currently covered by the PSD2 is as follows:

• Austria
• Belgium
• Bulgaria
• Czech Republic
• Cyprus
• Denmark
• Estonia
• Finland

• France
• Germany
• Greece
• Hungary
• Iceland
• Ireland
• Italy
• Latvia

• Liechtenstein
• Lithuania
• Luxembourg
• Malta
• Netherlands
• Norway
• Poland
• Portugal

• Romania
• Slovakia
• Slovenia
• Spain
• Sweden
• United Kingdom

Open banking allows banks and third-party financial service providers secure access to your bank and other financial data. Open banking is regulated by PSD2, which means that banks can share your financial data, such as regular payments and statements, with authorised service providers, as long as you permit them to. 

Open banking is a service, while PSD2 is one of the regulations that govern how that service works. Effectively, PSD2 is the law that requires banks to provide data to third parties (as long as you have permitted them to), and open banking provides a standard format in which to provide your data.

If you want to get a feel for open banking, register for a Raisin Account. A Raisin Account means you can benefit from fintech services and apply for savings accounts from a range of banks in one place. All you need to do is register for a free Raisin Account online, click to apply for a savings account and transfer your deposit to your Raisin Account. There’s no need to fill out a new application each time you apply, and your money is deposit protected from the moment it arrives in your Raisin Account to when it automatically transfers to and from a partner bank.