Users, businesses and banks will be affected by the entry into force of a European law that reinforces the security of electronic payments.

As of September 14, the way you buy online must change. Next Saturday, the European PSD2 regulation enters into force in Spain, which promises to strengthen the security of electronic payments and the entry of new operators into online commerce.

What is the PSD2 directive?

The PSD2 directive is a standard approved by the European Commission in 2015 to replace the previous regulation (PSD) of 2007, which regulated the market for electronic payments in the euro zone. “The entry into the market of new operators, such as fintech, and the need for greater transparency in operations required a new standard,” experts from HelpMyCash.com said. In this sense, European regulations have an impact on the financial sector, but it also affects electronic payment providers, marketplaces and electronic businesses.

How does the rule affect the financial sector?

Financial institutions will be affected by open banking. Thus, entities will be obliged to give access to their clients’ accounts to third parties. This seeks to homogenize the conditions in which all payment service providers (TTPS) operate.

New operators

The regulations will open the financial market to two new companies: on the one hand, the payment initiation service provider (PISP), software that will act as intermediaries between financial institutions and businesses. On the other hand, the account information service provider (AISP) will arise, which will order in the same platform all the data of the client’s financial products.

How does it affect the user?

Until now, when paying for an online purchase, merchants had to contact a number of intermediaries who, in turn, connected to the company responsible for the card (for example, Visa or MasterCard) to finally charge the bill to a checking account. However, with the PSD2 the consumer can authorize the merchant to execute payments on their behalf through their bank account. Thus, the merchant and the bank will now communicate via the mobile with an application of type API (application programm interface). Precisely, the API guarantees the protection of the user’s bank data through a reinforced authentication system that aims to avoid fraudulent operations.

This system requires the user to combine at least two independent elements to verify their identity. These can be either a device owned by the user, such as a smartphone; a password that only the customer knows; or a biometric parameter, such as the fingerprint or iris of the eye.

In addition, the new standard also provides for greater consumer protection in case of fraud. Thus, the user will only be responsible for unauthorized payments of up to 50 euros, and from that figure it will be the provider who will have to take care of the amount defrauded. With the previous directive that amount was up to 150 euros.

Faster purchases and goodbye cards

With the entry into force of the PSD2 regulation, the financial entities, by accepting that the bank details of the users are used by other companies -a previous authorization of the client in each of the operations that he does-, will ensure that purchases and transactions be faster. In addition, physical items such as bank cards will be removed. “Direct channels of communication between consumers and businesses are going to be generated. In this way, the new softwares will operate as payment gateways, eliminating the role that, until now, the providers of payment methods such as debit cards played “, they point out from HelpMyCash.com.