PSD2 is the second Payment Services Directive, designed by the countries of the European Union. It could revolutionise the payments industry, affecting everything from the way we pay online, to what information we see when making a payment.
Adapting to the new requirements will need a lot of investment on behalf of the industry - and while some players aren’t happy, it will be good news for consumers. PSD2 was first brought in at a European level in 2015, but members of the EU have until 2018 to implement it - which is why it matters now.
PSD2 will break down the bank’s monopoly on their user’s data. It will allow ‘merchants’, businesses like Amazon, to retrieve your account data from your bank - with your permission. That means when you buy something they can make a payment for you, without having to redirect you to another service (like PayPal or Visa).
For consumers who hold more than one bank account, the changes would also allow businesses, known in the legislation as Account Information Service Providers, to display all their account information in one place for them - similar to the service offered by Mint, in the US.
PSD2 will also require stronger identity checks when paying online. Like many elements of the directive, the specifics are still being debated - but it’s likely to involve more checks than we currently have, particularly for high value transactions.
In Spring next year, the UK Parliament will debate the Payment Services Regulations. These regulations will write PSD2 into UK law, but the Government can decide what is (and isn’t) upheld.
As well as the welcome changes to online payments and direct debits, PSD2 also prohibits the use of non-transparent pricing methods for international payments. Right now, banks and brokers often hide costs in poor exchange rates, which are much lower than the mid-market rate you’d see on Google. Most providers only disclose up front fees, either a fixed fee or a percentage of the transfer amount, meaning that customers are surprised with extra fees when the exchange rate used isn’t the one they’re expecting.
Like the first Payment Services Directive (PSD), PSD2 states that consumers should know ‘the real costs and charges’ of transferring money abroad. However, it’s not certain that the Government will uphold this commitment - they didn’t the first time.
The UK Government has issued their draft Payment Services Regulations - but ignored the measures in PSD2 which state consumers should know the “real costs and charges” of making a foreign currency transaction.
This means banks and brokers can still hide charges in bad exchange rates, which are much lower than the mid-market exchange rate you’d see on Google, XE.com or Reuters.
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