What is PSD2?
The Second Payment Services Directive (PSD2) is a landmark EU regulation that came into force in 2018, designed to revolutionize the payment landscape across Europe. PSD2 aims to:
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Promote open banking by mandating banks to provide access to customer account data to authorized third parties through APIs.
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Enhance payment security with Strong Customer Authentication (SCA).
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Foster innovation and competition by allowing fintech companies and payment service providers to operate on a level playing field.
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Protect consumers by limiting surcharges and improving transparency.
Key Components of PSD2
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Open Banking and API Access
PSD2 requires banks to open their payment infrastructure to Third-Party Providers (TPPs) such as:
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Account Information Service Providers (AISPs): Access customers’ bank account data with consent.
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Payment Initiation Service Providers (PISPs): Initiate payments on behalf of customers directly from their bank accounts.
This shift enables new financial applications to emerge, offering users consolidated account views, automated payments, and enhanced financial management—all securely and transparently.
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Strong Customer Authentication (SCA)
To reduce fraud, PSD2 mandates that most electronic payments undergo Strong Customer Authentication, requiring at least two of the following:
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Something the customer knows (password, PIN).
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Something the customer has (mobile device, hardware token).
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Something the customer is (biometric data such as fingerprint or facial recognition).
This ensures that online transactions, account logins, and payment method additions are securely validated.
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Ban on Surcharging
Merchants are prohibited from charging additional fees for payments made with credit or debit cards covered under PSD2, ensuring a fairer, more transparent payment experience for consumers.
Why PSD2 Matters for Virtual Cards and Buvei
PSD2 sets a new standard for payment security and transparency, creating opportunities and challenges for payment providers.
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Compliance and Security: Buvei’s platform supports dynamic authentication methods and API-driven control flows that align with SCA requirements.
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Programmable Payments: Through Buvei’s API, virtual cards can be issued with custom authorization rules that reflect regulatory demands and user profiles.
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Risk Reduction: Virtual cards with merchant locks, spending limits, and real-time revocation capabilities help mitigate fraud risks heightened by open banking.
Looking Ahead: PSD3 and the Future of Payments
PSD2 is not the end of payment regulation evolution. The European Commission is already working on PSD3, which aims to address new challenges such as:
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Further improving customer authentication processes.
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Enhancing consumer protections.
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Streamlining regulatory requirements for emerging technologies like crypto payments.
Buvei is committed to staying ahead of these changes, ensuring its platform remains compliant, secure, and cutting-edge.
Conclusion
PSD2 has fundamentally transformed the European payments landscape by enforcing open banking, mandating strong authentication, and fostering innovation. For companies and developers building payment solutions, understanding and integrating PSD2 requirements is critical.
With Buvei’s programmable virtual cards and API-first approach, businesses can confidently meet PSD2 compliance while offering flexible, secure, and scalable payment options.
