Open Banking PSD2

‍What isPSD2?

PSD2 is the European Commission's legislation that enables third parties /such as payment optimization software/ to participate in payments, providing secure authentication processes for customers. This regulation aims to open up the payments industry to increased competition, innovation and security and is used in all EU member states.

PSD2 is the second part of the European Commission (EC) directives related to payments. The first was PSD1 (or simply PSD - Payment Services Directive), first announced in 2007. PSD evolved into PSD2 in 2016.

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Optimisation of payments

Optimising payment processes means moving from traditional manual payment methods to electronic systems that enable faster, more secure and efficient transactions.

The most commonly used payment method is bank transfer, but as it requires more time for data entry, payments via PSD2 /open banking/, credit card or other local payment methods are increasingly used.

Digitising invoicing and payments provides businesses with a fully digital administration capability that improves and streamlines these processes and brings a number of benefits.

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The benefits of PSD2 for businesses

The most basic benefits of payments through open banking /PSD2/ for businesses are: 

• increased competition;
• improved security;
• improved user experience.

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Payment security with PSD2

To ensure the most secure payments, the PSD2 method consists of three payment authentication steps:

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- Access to Account (XS2A)

Account access allows third-party providers (such as fintech/accounting software) to securely access a user's payment accounts with their consent. This allows users to see all of their financial information in one place instead of switching between different platforms.

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- Strong Customer Authentication (SCA) - secure identification

SCA ensures secure and authenticated transactions by authenticating the person ordering the payment with a combination of the user's password and a second method. The second method can be through a mobile device, such as confirming the password through a payment or authentication app, or through a card reader that provides a one-time password.

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- Open Banking

Open banking allows different financial institutions to share customer financial data with each other in a secure way. The Open Banking initiative allows consumers to use different financial services from different providers. This allows users to easily choose to receive specific services from different providers.

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What's next for PSD2?

In June 2023, the European Commission announced the next development of the Payment Services Directive - PSD3.

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PSD3 will bring a new wave of opportunities, innovation and even more secure processes. The Directive is still under development and potential changes may arise based on feedback from Member States, but we can expect the Directive to be transposed into local laws between 2025 and 2026.

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With Banqup you can send and receive secure payments using PSD2. More information can be found here.

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