What PSD2 is, is largely unknown, yet it could bring significant changes to how payments are made

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, namely PSD2.

Payment Services Directive Two (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 consumers 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.

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 Euro 50 – that might also require additional authentication.