PSD2 – Terraforming the Payments Industry

April 11, 2017

PSD2 – Terraforming the Payments Industry

Card Issuers have intertwined card payments with consumerism right now. Commerce is card-centric, whether in its cardholder-present or virtual form. Well, kiss goodbye to familiarity because the European Banking Association (EBA) have decided it’s time for a shake-up: enter PSD2.

The Payments Overhaul.

Diversity in payment methods is an expected outcome of PSD2. What will happen is the EBA will force European banks to open their APIs to technology providers, which the EBA will categorise as two entities:

AISPs – Account Information Service Providers can consolidate and aggregate bank account viewing.

PISPs – Payment Initiation Service Providers start a transfer on behalf of a consumer.

When banks open their APIs, they offer new and existing technologies the opportunity to innovate. The previous duopolies, Visa and MasterCard, will operate on a level playing field with businesses experienced in bank transfers and the freedom they offer. Indeed, card payments may be slowly superseded by faster and cheaper online payment methods.

PSD2 and Security.

Along with the diversification of payment methods and key players, the industry will need to start conforming to new security measures the EBA imposes, that is,  Two-Factor Authentication (2FA). 2FA is the mandate that every transaction will need to pass two of three different types of identification. These are:

· Knowledge
Password, PIN etc.

· Possession
Card, Key Material

· Inherence
Biometrics, Voice Recognition

Ultimately, it will be up to the payment institutions to comply and consider how they will adapt to the changes. The release of 2FA overlaps with the upcoming release of 3D Secure 2.0, which is expected to come into play in April 2018.

Cause and Effect

The industry is not yet at the place where it can foresee key players or the innovative products that will arise.  Despite this, Cardstream knows the effects that PSD2 will have.

A levelled playing field would mean that new collaborations and businesses come into play. Like a genesis. So, freedom of interaction between new and existing organisations gives rise to interoperability. Additional security will also mean that organisations will try to solve the issue of checkout friction and conversions. Here’s a little of what Cardstream predict, free of charge:

The industry gives rise to AISPs who provide an overview of all your accounts, from savings to PayPal accounts, which offer additional functionality. This functionality could come in the form of reporting consolidation, money management advice, and the identification of unusual spending patterns.

Existing Payment Institutions and new Payment Institutions alike begin to absorb as many APMs as possible in an attempt to keep their service dynamic and future-proof. Before the enforcement of PSD2, we can expect a rise in acquisitions of FinTech companies in an attempt to take advantage of developing technologies; PISP’s may also wish to partner or become an AISP too, to move money freely between a user’s own accounts.

Other Changes

Aside from the big attractions of PSD2, the European Parliament will limit the maximum amount of Interchange that can be charged at under MIF (Merchant Interchange Fees). As well as this, the merchant will not have to adhere to the ‘Honour all Cards’ rule, meaning they can show a clear preference for payment methods. Furthermore, this regulation also prevents acquirers adding surcharges to pricing arrangements.

Under PSD2, 2FA will apply to all transactions with one party in Europe. This rule is referred to as ‘One Leg Out’.


To conclude, Cardstream has big things planned for PSD2 and its labyrinth of possibilities.  While we expect the EBA to cause a shake-up, there will remain a major space for card payments and Cardstream will continue to support all of our Partners in this capacity.