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PSD2 specifies that consumers have the right to use any third-party provider for their online banking services. As a result, banks are mandated to provide open Application Programming Interfaces or APIs to allow software at one company to access payment account information and payment initiation from another.

PSD2 requires banks to implement multi-factor authentication for all proximity and remote transactions performed on any channel to protect the consumer. This obligation means using two of these three features: Knowledge: Something only the user knows, e.g., password, code, personal identification number.

Increased security A large part of the innovation factor around PSD2 is the two-factor authentication around payments. This requires two out of the following multi-factor authentication methods: Knowledge: such as a password, or account retrieval questions. Possession: such as a passcode to your phone.

PSD2-compliance checklist Set up a Consumer Identity and Access Management (IAM or CIAM) solution. Strong Customer Authentication (multi-factor and continuous authentication) Create APIs to access transactional payment data that support: Fine-grained access control. Real-time access. Provide Access to Account (XS2A)

PSD2 will contribute to a variety of changes in the payments industry, including open banking, creating an integrated payments ecosystem, increasing competition with the emergence of fintechs and new entrants, and enhanced security and fraud prevention.

Put simply, Payment Services Directive Two (PSD2) is a piece of legislation designed to force providers of payment services to improve customer authentication processes and to also bring in new regulation around third-party involvement.

PSD2 requires banks to implement multi-factor authentication for all proximity and remote transactions performed on any channel to protect the consumer. This obligation means using two of these three features: Knowledge: Something only the user knows, e.g., password, code, personal identification number.

The PSD2 SCA requirements oblige relevant companies to enhance customer security around payments by deploying multi-factor authentication (MFA) for relevant transactions. MFA means that the customer must verify their identity by providing two or more factors of authentication.