PSD2 and Open Banking Explained – new opportunities and challenges

The Second Payment Services Directive, also known as PSD2, came into full force on 12 January 2016 and was implemented in the Netherlands on 19 February 2020.

This legislation offers new opportunities by enforcing open banking, and thus enhancing competition between payment service providers, within a regulatory framework which provides more safety and security for customers. Briefly put, the PSD2 aims to secure e-payments and to expand the financial services ecosystem by opening up the value chain in Europe. Concerning new possibilities, the PSD2 introduces two new roles in the value chain: Payment Initiation Service Provider (initiates the payment process) and Account Information Service Provider (consolidates customer’s data). As for payment initiation services, the PSD2 allows businesses to initiate payments directly from the customer’s bank account – if customers explicitly give consent for this, but without the need to use a credit or debit card.

A significant benefit of payment initiation services is the elimination of the high fees charged by credit card organisations and businesses offering a mobile point of sale solutions. From a consumer perspective, another major advantage of payment initiation services is related to security. That is, by using a payment initiation service, the retailer does not collect any sensitive payment data (e.g. credit card details) because the customer uses the bank’s website or app for the payment of goods or services. Webshops, for instance, can benefit from the PSD2 by introducing their own payment solution to enhance their customers’ user experience.

The other new PSD2 service, account information services, allows businesses to access account information of their users if these users explicitly give consent for this. This service provides parties with the opportunity to react faster and give in-depth financial insights based on the payment behaviour of the user. For example, the ability to retrieve payment information enables businesses to provide their users with an overview of its bank accounts with one or more banks, and of its payments. Although these innovations reshape the world of traditional banking, the PSD2 does not come without any challenges. The PSD2 among others requires a licence for payment initiation services and account information services from an EU Member State national bank before entering the European financial market. It also introduces the requirement of a declaration of no objection of holders of an indirect or direct ‘qualifying holding’ in any Dutch payment institution, a liability for unauthorised payment transactions and enhanced rules on the protection of personal data.