EU Directive Sets New Rules For Online Payments: PSD2 Explained

What Is PSD2?

PSD2 is a Revised Payment Service Directive issued by the European Commission. It sets innovations in the EU financial field. The purpose of the document is to expand the range of services and ensure online deals' security.

  • unite the European financial market
  • facilitate access to commercial data
  • boost payments security

What Is SCA?

SCA stands for Strong Customer Authentication. To clarify, it is a rulebook with a set of steps that put PSD2 regulation into action. One of the steps requires multi-factor authentication for all online payments. It says, at least two of the three points below should be made to verify buyer identity:

  • Something the user knows, like pin or password
  • Something user possesses, like device or hardware token.
  • Something user is, like fingerprint or iris
How SCA works.

What Is Open Banking?

Earlier, the banks and licensed financial institutions had a monopoly on the possession of client personal data. Now, they are obligated to make this data freely available via the API — open banking. Thus, the client's personal information (with the client's consent) can develop fresh financial services.

How open banking works

How PSD2 Affects The Market

At first glance, it may seem that PSD2 does not respect banks' and clients' interests, forcing the first to leak the data and the latter to share personal info. However, a closer look into the directive shows clear benefits for all the parties of financial relations.


PSD2 regulation gives the green light for the development of fintech institutions. Thanks to open banking, companies have free access to the necessary data to build financial apps.


The directive enhances competition among financial market participants. For the toughest opponents, it brings meaningful gains.


PSD2 obliges sellers to set up a new transaction mechanism using 3DS2.0 — an improved security protocol for online payments. Despite the need to make an effort, vendors are going to benefit from it.


Perhaps, users have the biggest winning from Payment Service Directive2. No action is required from them to comply with the new standards.

PSD2 benefits

What Are PSD2 Exemptions?

PSD2 and SCA cover online transactions within EEA. But don’t worry — there is no need to go through biometric verification each time you order a taxi via Uber or renew your Netflix subscription. The authors of the document highlighted specific cases that do not fall under the regulation of the directive.

PSD2 exemptions

How To Comply With PSD2?

To work under the Revised Payment Service Directive, you should make all payments through the security protocol 3DS2.0. This protocol helps the issuing bank obtain detailed information about the transaction and prevent unauthorized access.



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store



Softensy specializes in fintech development and enterprise-level apps. Our team helps companies automate business processes by developing software solutions.