The Revised EU Directive on Payment Services in the Internal Market

The Revised EU Directive on Payment Services in the Internal Market, commonly abbreviated as PSD2, was adopted in December 2015. It replaces the original Payment Services Directive of 2007, which was transposed into Cyprus legislation in 2009.

PSD2 sets out a common legal framework for businesses and consumers when making and receiving payments, whether within the European Economic Area, which comprises the 28 European Union Member States plus Norway, Iceland and Liechtenstein, or outside the EEA. PSD2 includes provisions to promote innovative mobile and internet payment services, to make it easier and safer to use internet payment services, to improve consumer protection against fraud, abuse, and payment problems and to strengthen consumers’ rights.

PSD2 will provide consumers with greater choice by enabling customers of banks to use third party payment services providers (TPPS) in order to make payments, with the aim of increasing competition and making payments easier, safer and less expensive. PSD2 will allow TPPS to use banks’ application programming interfaces to enter into the financial market. It obliges member states to ensure that banks do not block or hinder access to payment accounts and that payment services providers have access to credit institutions’ payment accounts services in an objective, non-discriminatory and proportionate manner.

Technology companies such as Amazon, Apple, Facebook and Google are likely to benefit from the application of PSD2 since they have access to a huge database of consumer behaviour data and understand customers’ needs. Their ability to offer financial services adapted to customers’ needs, directly to their customers, will offer increased convenience to consumers. Facebook has already acquired a licence to make payments in the EU and others are likely to follow.

PSD2 will also create opportunities for banks to generate additional revenues and profits by collaborating with fintech companies in order to provide their customers with new, innovative products and services and increase cross-selling opportunities.

EU member states, including Cyprus, are required to incorporate PSD2 into their national legislation by 13 January 2018, less than a year from now. It will fundamentally change the payments value chain, what business models are profitable, and customer expectations.