Customers know nothing about PSD2, yet it could bring significant change to day-to-day banking. The way millions of customers across the UK make payments through digital banking services is about to undergo a significant transformation thanks to a set of new rules about to be rolled out for financial businesses.
Payment Services Directive 2, commonly summarised as PSD2, is a piece of EU legislation designed to force providers of payment services to improve customer authentication processes and to create new regulation around third-party involvement in payment services.
While PSD2 is primarily designed to advance the way payment service providers operate, its implementation is likely to bring changes to the day-to-day banking activity of regular customers across the UK and further across the European Union.
So, what kind of changes can customers expect?
The regulation requires providers to provide ‘strong customer authentication’. On the ground, this could mean the distribution of new ‘security tokens’ as one of a number of enhancements.
A security token is often a physical device that an authorised account holder uses to ensure a secondary level of authentication when performing transactions – such as making a payment to another account. New devices could be issued to take-in new forms of authentication.
With that measure in mind, a further development could see growing enrolment of customers into biometric authentication programmes – where using facial recognition or fingerprints will allow them to make payments from a range of devices. Biometrics was part of a recent Experian #FutureofID debate, particularly image-based biometrics. Usage vs. risk was debated and whilst some commented on the part technology has to play, others raised concerns over the accuracy in validation in this way.
While some everyday transactions – such as Chip and PIN – will remain unchanged, a payment from an online banking system might require additional levels of security or authorisation.
Similarly, if transactions are over a set amount – perhaps €50 – that might also require additional authentication. For the customer this process will become the norm. However, on the surface it can appear, to the layperson, quite a complex scenario. Chip and Pin was assumed to be complex and critics debated the universal take-up. But, a decade on, it’s still the envy of many industries as a result of the transformation in payment validation. More recently contactless has been adopted too. Instantly an innovative and revolutionising way of making payments is now being adopted more and more – with over 29% more issuers than this time last year, and over £240 million in a single month transacted as a result.
What we have seen, and are seeing, is the transformation in payment processes. Each time the validation becomes more robust and new processes are introduced to the customer which they appear to embrace. Phone payments, watch payments – they are all changing the way of how we transact. PSD2 will most likely stem another revolution and provide more robust and consistent processes come 2018.