PSD2 will revolutionise payment services for the consumer and drive the development of Open Banking

Published in ECONOMIST & JURIST

Madrid, 4 de Mayo 2020

The European Payment Services Directive, better known as PSD2, which entered into force on 14 September 2019, replaced the original PSD from 2009 which regulated the electronic payments market in the euro-zone. With the emergence of new operators, this directive had become obsolete and needed to be updated.

The aim of this new legislation is to guarantee online payments and prevent fraud. Financial organisations are required to open up their payment services to third parties who are authorised by users. These third parties are external payment providers, known as TPPs (Third Party Providers), and the PSD2 established two different types: PISP (Payment Initiation Service Providers), who enable payments by bank transfer where previously they could only be made by card, and AISP (Account Information Service Providers), who gather users’ account information so that users can access all their banking data through a single provider.

There are two key components to this new legislation: The first is the sharing of information by freeing users’ financial data with their prior authorisation to increase competition in the sector. The second is improved transaction security by implementing more robust methods for identifying and authenticating users who make payments with the aim of guaranteeing and boosting competition, creating added value. It furthermore aims to improve payment security and efficiency, provide increased consumer protection, strengthen the European payment market by standardising regulations between the different EU countries, and continue to promote innovation and adaptation to new technologies by the financial sector.

This new regulatory framework provides many advantages for the development of the electronic payment market in the EU. It increases competition in the sector, with new operators offering users greater choice and competitive prices, and strengthens the security of operations with double authentication. The aim is to reduce fraud and make transactions more secure. From the countless advantages for the consumer, the following are worth highlighting:

– Greater information and transparency. The user will know all expenses associated with each transaction, as well as their status and timeframe for execution, with no added cost.

– Ease of cancellation for any operation without the need for prior notice, unless agreed otherwise. This facility will not be free if the contract between the user and the provider is for less than six months.

– Rectification of unauthorised operations as soon as the user becomes aware of them. The user has the right to request a refund and, in the case of discrepancies, it will be the payment provider who needs to demonstrate that an operation has been carried out correctly, in accordance with banking security legislation, and that they have the necessary authorisation.

– Limited liability when the user is the victim of fraud, with a customer liability of €50 instead of the previous amount of €150.

– Reduced fraud and increased banking security through the implementation of stronger authentication measures, using at least two of the following three methods: inherent measures, such as fingerprint, iris or face recognition; a physical reference such as a card, digital certificate or a mobile phone; and thirdly, known information, such as a PIN or password.

At GDS Modellica, we understand that the arrival of this new payment legislation opens up a wide range of possibilities in the financial sector, helping to create a more integrated European payment market, make payments as secure as possible and protect consumers. It directly affects banking organisations and, as a consequence, they need to make changes to their data access methods regarding Open Banking, opening up their infrastructure and improving security. As a result of all this, we have launched our own 100% digital solution for the onboarding process which allows payment providers to carry out the process from start to finish, ensuring two-way communication with the customer via an alternative channel which uses the latest natural language processing technology with artificial intelligence.

The main priority of this new legislation is security. With this in mind, at GDS Modellica, we provide intelligent platforms, advanced analytics and machine learning techniques that help to manage risk, combat fraud and build worthwhile relationships between businesses and their customers through strategies which are tailored to individual needs.

The banking sector is using Open Banking technology to analyse the importance of data and make use of commercial strategies and opportunities. The technology is a fundamental part of purchasing financial products and services remotely, using greater connectivity to gather and transfer data, a more comprehensive Internet of Things and the convergence between fixed and mobile technologies. Looking specifically at this sector, this will lead to the definitive roll-out of virtual assistants, as well as an increase in communication security through the use of technologies such as Blockchain or Machine Learning.

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