The second Payment Services Directive, or so-called PSD2 requirements will come into force on September 14th, 2019. With this deadline approaching, we have decided to examine this matter from the merchandiser’s perspective.
In brief, PSD2 is an initiative from the EU aimed at regulating the e-payment environment where banks and fintechs (Third Party Service Providers – TPSPs) currently operate in a largely disorganized manner. There is no consistent, standardized or regulated framework that defines the cooperation between banks and TPSPs. The bank may refuse access by a TPSP to its client’s bank account, preventing the same client or merchandiser from using the TPSP’s services, which may be more convenient or less costly than banking services.
To regulate the e-payment market, PSD2 will force banks to grant third-party access to their clients’ bank accounts. Equally important, TPSPs will be regulated – they will have to obtain a license and set up new frameworks in order to establish strong customer authentication (SCA) procedures. When SCA takes effect, two of three identification elements will be required: something the customer knows, has, or something the customer is. To comply with this requirement, a new version of the authentication protocol 3D Secure 2 was developed that will enable banks to confirm the EU card payments collected via TPSPs.
In general, many TPSPs, such as “Stripe”, will provide easily implementable tools for their customers, such as e-shops, to collect money from EU credit cards. But if an online business is paid from a monthly subscription or employs a prepaid business model, then that business will have to invest in creating new APIs to interconnect with the relevant TPSPs.
For example, DIDWW – the platform for telecommunication professionals, has implemented a one-time Stripe’s Instant Payment option with 3D Secure 2 authorisation for its clients who use EU credit cards to add funds to their accounts. Detailed instructions on how to use an Instant Payment can be found here. However, to maintain uninterrupted DIDWW services during this transition period, it is recommended that users top-up their account balances in advance. As an alternative to credit card usage, DIDWW does offer two other payment options: Paypal and wire transfer.
“While we understand that this new requirement improves the security and confidence for the users,” said Edwin Terek, the founder at DIDWW, “we believe that this directive will encourage many industry participants to adopt alternative, over the top payment solutions such as cryptocurrencies.”
In summary, PSD2 presents a great opportunity for new payment market players, as they will not need to maintain burdensome banking infrastructure. However, this initiative will require fundamental IT changes, from the implementation of APIs to the new security requirements and improved server capacity. Also, PSD2 will definitely impact most of the online merchants, and they will have to develop additional functionality in order to implement the required connectivity with TPSPs to support the new payment workflows.
Find more useful resources about PSD2 here: