The Payment Services Directive was originally introduced in 2009 to create a single market for payments within the European Union.
The European Commission built on the original Directive and issued the Revised Payment Services Directive (PSD2) which came into effect on 13 January 2018.
PSD2 regulates all payment services throughout the European Union and is designed to make payments safer, give further protection to consumers as well as encouraging innovation and competition.
Regulating Third Party Providers re Payment Service Directive
PSD2 regulates new players on the market, which are known as Third Party Providers (TPPs). They are in turn broken down into two types: Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs).
AISPs, with the client’s consent, provide an aggregation of all the payment accounts held at different banks by the said client.
PISPs, on the other hand, can make a payment on behalf of a consenting client to a bank from the client’s payment account.
Payments, Security and fraud
PSD2 demands increased customer authentication in order to beef up security and mitigate card payment fraud.
As a result, banks are no longer allowed to issue local debit cards which are limited to magnetic strip technology.
This has led to a nationwide upgrade of card technology to EMV – more commonly known as Chip & Pin.
These changes have also led to the ushering in of contactless cards, also known as Pay Wave or Tap and Go, allowing for much faster low value transactions.
If a card is stolen and fraudulent transactions have been made, the client is only liable to pay a maximum of EUR50.
In addition, PSD2 prohibits the charging of extra fees on card transactions.
Sharing of charges
PSD2 also changes the way bank transfer charges are made. If the person making the payment and the person receiving the payment’s bank accounts are within the European Economic Area, bank charges will be shared between both parties, irrespective of the currency of payment.
PSD2 also directs banks to provide monthly and annual statements to clients free of charge in electronic or paper format. Consumers have the right to lodge a complaint with their bank if they feel that any PSD2 provisions have been breached. Banks are obliged to address any complaint within 15 or 35 days if information is needed from third parties.