# PSD2: Are you ready for the digital payments revolution? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-11-24 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: PSD2: The Impact on Financial Services in 2018 Meta Description: Explore the impact of PSD2 & GDPR on the financial industry in 2018 and learn how businesses can navigate these transformative regulations effectively. URL: https://financedigest.com/psd2-are-you-ready-for-the-digital-payments-revolutionhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd241117-2-1736843206668-compressed.jpg) _**Ian Clark** ,Vice President, API Management, CA Technologies_ 2018 is set to be a pivotal year for the financial services industry with both the General Data Protection Regulation ( [GDPR](http://ec.europa.eu/justice/data-protection/reform/index_en.htm)) and the revised Payments Services Directive ( [PSD2](https://ec.europa.eu/info/law/payment-services-psd-2-directive-eu-2015-2366_en)) due to become law, transforming the way that businesses approach their customers’ data. While GDPR looks to ringfence consumer privacy, PSD2 conversely looks to unleash the banking and payments sector, allowing third-party access to customer data. The combination is a potent legislative cocktail that will challenge banks and fintech companies as the European Union (EU) looks to actively enforce data protection rules while fostering a more open and competitive financial marketplace. Both are the subject of much debate. But in this article, I want to explore PSD2, what it means for the financial community and the steps that must be taken in the lead-up to this pivotal year. **PSD2: Becoming law** PSD2 updates the original Payment Services Directive and was proposed by the [European Commission](https://www.financedigest.com/ftx-collapse-shows-urgent-need-to-finalise-eu-crypto-rules-says-european-commission.html "FTX collapse shows urgent need to finalise EU crypto rules, says European Commission") in 2013. But January 2018 is the date on everyone’s lips as 28 EU member states transpose the provisions of PDS2 into national law. PSD2 will revolutionise the way we make [digital payments](https://www.financedigest.com/will-central-bank-digital-currencies-deliver-a-more-democratic-payment-industry.html "Will Central Bank Digital Currencies deliver a more democratic payment industry?") by allowing consumers to have the option of using third-party providers to manage their financial assets. It will take us from a ‘monolithic model’, where consumers interact primarily with just a single bank to a ‘banking platform model’ where consumers have the option of [leveraging](https://www.financedigest.com/dont-play-second-fiddle-how-disruptor-banks-can-leverage-music-and-audio.html "Don’t Play Second Fiddle: How Disruptor Banks Can Leverage Music and Audio") multiple services from multiple financial service providers and banks. The regulation looks to level the playing field, creating a single integrated payment services market with uniform approaches for both banks and the emerging payments and fintech companies. It will further free the [market by removing](https://www.financedigest.com/extracorporeal-co2-removal-market-in-depth-analysis-by-trends-opportunities-drivers-challenges-and-growth-factors-by-2026.html "Extracorporeal CO2 Removal Market: In-Depth Analysis by Trends, Opportunities, Drivers, Challenges and Growth Factors by 2026") barriers to entry for new operators. The regulation does this by strengthening uniform security for all stakeholders, unlocking the opportunity for new payment services, ensuring transparency and promoting [market competition](https://www.financedigest.com/paper-recycling-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region.html "Paper Recycling Market Competitive Growth Strategies Based on Type, Applications, End User and Region") through innovation. **Educating the consumer** PSD2 has the [potential to be hugely beneficial to consumers and therefore to businesses delivering](https://www.financedigest.com/delivering-on-the-potential-of-open-finance.html "Delivering on the potential of open finance") those services. PSD2 allows for faster [payments and makes strong](https://www.financedigest.com/the-late-payments-toolkit-how-to-keep-the-cash-flow-strong.html "THE LATE PAYMENTS TOOLKIT – HOW TO KEEP THE CASH-FLOW STRONG") customer authentication mandatory. With [consumers demanding](https://www.financedigest.com/global-emi-shielding-market-significantly-hit-by-lack-of-consumer-demand-scenario-post-covid-19-crisis-likely-to-remain-gloom.html "Global EMI Shielding Market Significantly Hit By Lack Of Consumer Demand; Scenario Post Covid-19 Crisis Likely To Remain Gloom") access to all their banking services across every digital channel, whenever and wherever they are, this regulation gives the financial services market the chance to properly respond and deliver on those expectations. But with less than six months to go before it is enacted into law, [89% of consumers](http://www.itproportal.com/news/consumers-clueless-to-psd2/) do not know what PSD2 actually means for them. [Banks need to take the lead in educating the public on the potential implications that the new regulations](https://www.financedigest.com/exclusive-china-regulator-launches-new-probe-into-banks-property-loan-exposure-sources.html "Exclusive-China regulator launches new probe into banks’ property loan exposure – sources") will have for them, allaying their concerns around data protection. Without effective communication, [banks risk](https://www.financedigest.com/the-risks-and-rewards-of-ai-in-banking-in-2022.html "The risks and rewards of AI in banking in 2022") losing the trust of their customer base. Those that get it right could gain a [competitive advantage](https://www.financedigest.com/how-automation-gives-fs-leaders-a-competitive-advantage.html "How automation gives FS leaders a competitive advantage") here. **Realising the** [business opportunity](https://www.financedigest.com/thoracic-drainage-devices-market-rising-new-business-opportunities-for-investors.html "Thoracic Drainage Devices Market Rising New Business Opportunities for Investors") From a business perspective, PSD2 enables the industry to be more open, innovative and collaborative. But financial [services companies must](https://www.financedigest.com/as-saas-grows-financial-services-must-rethink-their-security-approach.html "As SaaS grows, financial services must rethink their security approach") grasp that opportunity with both hands. With this in place, banks and fintech providers can partner to develop innovative new services that were not previously possible. However, the larger banks need to ensure that they are receptive to this change and become more open to [sharing data](https://www.financedigest.com/how-data-sharing-can-give-brands-confidence.html "How data sharing can give brands confidence") and insights with fintech companies, or they could be left behind. As with all modern data issues, implementing new technologies is crucial here and [banks are turning to the latest enterprise software to make them more agile ahead](https://www.financedigest.com/polish-central-bank-holds-rates-points-to-slowdown-ahead.html "Polish central bank holds rates, points to slowdown ahead") of the PSD2 deadline. Here are two examples of how organisations may encounter the new Directive and recommended tools to help meet and surpass key requirements of stronger authentication, for open secure communications: 1. **Issue: Online banking security** **Solution: Advanced authentication**: Advanced authentication is a flexible and scalable solution that incorporates both risk-based authentication methods, like device identification, geolocation and user activity, as well as a wide variety of multi-factor, strong authentication credentials. This solution allows financial organisations to create a layered, strong [authentication process to ensure that only legitimate users gain access to their accounts and payment](https://www.financedigest.com/the-key-trends-in-payment-authentication.html "The key trends in payment authentication") services 2. **Issue: Account access and API security** **Solution: API management**: Application programming interfaces (APIs) provide the connectivity to meet PSD2’s [open communications demands](https://www.financedigest.com/lego-posts-strong-growth-on-robust-demand-new-store-openings.html "Lego posts strong growth on robust demand, new store openings") and requirements (e.g. Third-Party Provider, TPP and Access to Account, XS2A). API management provides the capabilities financial organisations need to address new [digital transformation](https://www.financedigest.com/the-four-benefits-of-digital-transformation-in-the-finance-industry.html "The Four Benefits of Digital Transformation in the Finance Industry") challenges. This platform secures the open enterprise, providing a secure integration capability across apps, devices, and businesses 2018 and the introduction of PSD2, along with GDPR, will certainly bring disruption to the financial [services market](https://www.financedigest.com/constructive-digitization-to-let-the-remote-patient-monitoring-services-market-come-of-age.html "Constructive digitization to let the Remote Patient Monitoring Services Market come of age"). However, this must be viewed as an exciting opportunity for businesses to re-evaluate their proposition to today’s consumer, and collaborate across the [industry better to deliver new exciting innovative services](https://www.financedigest.com/balancing-innovation-and-security-within-the-financial-services-industry.html "Balancing innovation and security within the financial services industry"). There is potential for some delay to PSD2 given the lack of clarity of the EBA Regulatory Technical Standards (RTS) for [strong customer authentication](https://www.financedigest.com/strong-customer-authentication-must-be-adopted-to-make-open-banking-a-success.html "Strong Customer Authentication must be adopted to make open banking a Success") and common and secure communication. To ensure [innovation is not stifled](https://www.financedigest.com/telecoms-mega-mergers-innovative-or-stifling.html "Telecoms mega-mergers: innovative or stifling?"), the RTS takes a ‘what’ rather than a ‘how’ approach, leading many stakeholder banks to stall in defining their PSD2 strategy and building a solution. Regardless of the possible [delays until late](https://www.financedigest.com/britain-delays-full-post-brexit-import-checks-until-late-2023-2.html "Britain delays full post-Brexit import checks until late 2023") 2018, to allow the details to be finalised, now is the time to consider an appropriate PSD2 strategy. Companies need to build a standards-based PSD2 platform that is ready for 2018 yet sufficiently flexible to adapt to the evolving regulatory and business needs of [Open Banking](https://www.financedigest.com/what-does-2022-hold-for-open-banking-some-predictions-from-the-ecosystem.html "What does 2022 hold for open banking? Some predictions from the ecosystem") that the market will demand. If banks and fintech companies respond appropriately to these impending regulatory changes, a [hugely positive shift for the market](https://www.financedigest.com/quad-flat-no-lead-packaging-market-huge-growth-opportunity-between-2017-2027.html "Quad-Flat-No-Lead Packaging Market Huge Growth Opportunity between 2017-2027") can be triggered, resulting in a far more consumer-centric operating model. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---