PSD2 is the future of payments. It not only protects those that are purchasing from online companies, but also the companies themselves.

The world is more connected than ever before. With the immense growth of the internet over the last few decades impacting every corner of society, innovations in payment solutions have brought exciting new and better technologies to make shopping online easier and more secure.

PSD2 is Europe's latest regulation for electronic payments. These regulations are designed to help Europe develop its banking services and electronic payment technologies. At its core, PSD2 gives third parties access to the banking system across the European Union (EU).

Keep reading to discover what PSD2 is and what these regulations mean for online businesses.

What Is PSD2?

The original Payment Service Providers Directive (PSD) came online in 2007. The regulation directive was meant to develop the single payment market in the EU. Four years later, in 2013, the European Commission passed an amendment which came to be known as PSD2.

The amendment sought to improve consumer protection and boost innovation towards more secure transactions. It is the commission's hope that this newly amended regulation will facilitate new developments in fintech.

What Changed?

The reasons for the changes are many but the biggest factor that was causing reason for concern – the fact that the original PSD opened third-party services that were increasingly less secure. 

The PSD2 brought new regulations that basically harmonized the popular services, Payment Initiation Services (PIS) and Account Information Services (AIS).

Although PSD2 doesn't explicitly mention APIs in the regulation language, everyone knows it is PSD2 API requirements that will allow banks and third-party payment processors to meet the security requirements of the oversight. Application developers have long since been working on common standards and protocols that will bring PSD2 compliance across the board.

Important Milestone for PSD2 Compliance

Bringing the entire banking system to PSD2 compliance has not been a quick process and delays occurred. The EBA gradually began enforcing the regulation in January. Yet, it wasn't until September 14, 2019, that third-party access requirements were enforced.

The technical requirements of the regulations needed to be adopted slowly across the banking infrastructure in order to keep from stifling growth and having a negative impact on e-commerce across the European economy. This allowed "transitional period" for institutions to meet PSD2 regulation requirements ended December 31, 2020.

The switch to PSD2 open banking systems and API security development around the world is a major trend to watch in 2021.

PSD2 Open Banking of the Future

Technology is progressing so fast that you could say that the future is already here. With every breakthrough in digital commerce comes more sophisticated methods of fraud that threaten its stability. Regulations like PSD2 force businesses and banks to proactively seek solutions and turn the tide towards more secure transactions.

Vesta is on the cutting edge of fraud prevention with billions of transactions guaranteed and secured for businesses like you. Contact us to learn more about how we can secure your online payment systems, 100% guaranteed.