Payment Services Directive 2 and Its Influence on Online Payments
The EU adopted the Payment Services Directive 2 (PSD2) in early 2018 and implemented new regulations on payment services. It fully came into effect at the end of September 2019. How will the PSD2 influence the conduct of online transactions, in particular, in the gambling field?
What is PSD2?
The PSD2, which builds on the first Payment Services Directive (PSD), primarily aims to finalize the formation of the EU’s single market for transactions, make them more innovative and safer for customers. Besides, the directive is intended to improve the protection of international transactions in the EU that should become as secure as any internal transactions for each country.
In theory, PSD2 has to secure users of digital technologies and strengthen competition in the banking sector. According to the new regulation, two-factor authentication is introduced in online banking and online transactions. The document came into effect in September 2019 and many EU banks gradually started to shift to the new system.
For example, the Bank of Spain has already given directions to the financial institutions of the country to build the operations strategy in compliance with the new rules. This procedure can take some time: Spanish banks have 18 months to make the transition.
How will be online payments conducted
According to the new rules, to make an online payment, the user has to undergo the two-factor authentication process. Users have to choose two of three possible confirmation systems.
- Password or PIN code identification.
- Using an SMS code or a mobile app.
- Fingerprint, face recognition, retina scan.
Customers will be able to define for themselves which method is the most convenient and use it in accordance with the conditions of the directive. An important nuance: if a certain amount or the number of transactions is exceeded, conditions of authentication may change.
Although the rules are getting more complicated, users will get certain advantages such as the increase in the security level, the right to refund, the reduction in the number of intermediaries in online payments. Besides, the PSD2 supposes the cancellation of fees for card payments.
How will the new rules influence
online payments and gambling?
The additional safety measure for users will create certain difficulties for businesses that work in the EU. For example, companies will need time and resources to change the payment systems according to the new rules. This directly relates to gambling, where transactions are run online (to make deposits, withdraw money).
However, the business will get advantages as well. For example, customers will have the possibility to add the company to the white list, which will allow further interaction without an additional identification step. This feature of the PSD2 regulations will give a head start to companies that operate with the highest transparency, so there is no need to dawdle on the transition process.
The PSD2 will make online payments more secure, and reduce fraud risks. However, the transition to the new system may be troublesome for companies and banks as well as customers. Besides, this will reduce the payment mobility to some extent, as the user identification process will include one more step.