What is PSD2 and How Does It Affect You?

The financial world has seen significant change over the past few years, driven by evolving customer expectations and the rise of digital technologies. One of the most impactful regulatory shifts has been the introduction of PSD2 - the Second Payment Services Directive - by the European Union. But what exactly is PSD2, and what does it mean for consumers and businesses alike?

A Quick Breakdown of PSD2

PSD2 is an EU directive that came into force in 2018 to regulate payment services and providers throughout the European Economic Area (EEA). It builds on the original PSD (2007), with the goal of fostering innovation, enhancing security, and promoting competition in the European payments landscape.

At its core, PSD2 opens up the financial services market by enabling Third-Party Providers (TPPs) to access consumer bank data - with their explicit consent - via Open Banking APIs. This allows new players to offer payment services or aggregate financial information, creating a more dynamic and customer-centric ecosystem.

Key Features of PSD2

1. ‍Open Banking
   PSD2 empowers consumers by giving them control over their financial data. Banks are now required to open their APIs to regulated third-party providers, allowing for services like account aggregation, smart budgeting tools, or new forms of credit and payment offerings.
2. ‍Strong Customer Authentication (SCA)
   To combat fraud, PSD2 introduces stricter authentication requirements. Customers must now verify their identity using two or more factors (something they know, have, or are), improving security for online payments.
3. ‍Increased Competition & Innovation
   By lowering barriers to entry for fintechs, PSD2 fosters greater competition in the payments market. This benefits consumers through better pricing, more options, and enhanced digital experiences.

What Does This Mean for You as a Business?

For brands and merchants, PSD2 unlocks several new opportunities - and a few responsibilities:

• ‍Enhanced Checkout Experiences
  By integrating with Open Banking services, businesses can offer faster, direct bank payments that bypass traditional card networks - often at lower cost.
• ‍New Customer Insights
  With access to aggregated financial data (with user consent), companies can develop more personalized offerings and gain deeper insights into spending behavior.
• ‍Compliance Pressure
  Businesses operating in the EU must ensure they comply with SCA requirements, particularly for online and mobile payments, to avoid failed transactions and customer frustration.

The Bigger Picture

PSD2 is part of a broader movement toward more open, interoperable, and customer-centric finance. It’s laying the groundwork for future innovations in embedded finance, seamless digital payments, and greater financial inclusion.

As adoption of Open Banking accelerates, forward-thinking businesses are integrating PSD2-compliant services into their customer journeys - not just to meet regulations, but to differentiate their offerings and deepen trust.

Conclusion

Whether you’re a startup, a fashion brand, or an enterprise retailer, PSD2 matters. It’s not just a regulatory update; it’s a gateway to a new kind of financial ecosystem - one where data, experience, and access are driving competitive advantage.

At Payme Swiss, we help businesses explore how to leverage Open Banking and embedded finance tools in line with PSD2 and beyond.