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The Impact of PSD2 on Online Transactions: What You Need to Know

May 23, 2023

In 2018, the Payment Services Directive 2 (PSD2) came into effect across the European Union. This represented one of the most significant changes to the payments landscape in recent years. The directive aims to improve consumer protection, promote competition, and make payments safer and more secure.

As a result, businesses that operate in the European Union must comply with PSD2 regulations when accepting online payments.

So, what is PSD2, and how does it affect businesses that process online transactions? Below we explore the key changes that PSD2 introduces and what businesses need to do to comply.

What is PSD2?

PSD2 is a directive issued by the European Parliament and Council that regulates payment services and electronic money institutions within the European Union. The directive updates the original Payment Services Directive which was issued in 2007. It introduces several new requirements and regulations for payment service providers.

One of the most significant changes that PSD2 introduces is the requirement for Strong Customer Authentication (SCA) for online payments. SCA is a two-factor authentication process that requires customers to provide two forms of identification. An example is a password and a code sent to their mobile phone to complete a transaction. This extra layer of security is designed to reduce the risk of fraud and protect customers' financial information.

What are the implications of PSD2 for businesses?

The introduction of PSD2 has several implications for businesses that process online. The most significant change is the requirement for SCA. It can cause some inconvenience for customers and may lead to a higher rate of abandoned transactions.

However, businesses that comply with PSD2 regulations can benefit from increased customer trust and confidence in their online payment systems. They can also benefit from increased innovation in the payments industry. This is because PSD2 encourages the entry of new players and promotes the use of open banking APIs.

What do businesses need to do to comply with PSD2?

To comply with the directive, businesses need to implement SCA for all online payments, except for low-value transactions or those that are exempt.

Exemptions from SCA apply to several types of transactions. These include recurring payments, low-value transactions below €30, transactions made through trusted beneficiaries and transactions that are considered low-risk.

To implement SCA, businesses need to work with their payment service providers to integrate the necessary authentication processes into their systems. They may also need to update their terms and conditions and inform their customers about the new authentication requirements.

Businesses that fail to comply with PSD2 regulations may face fines or penalties from regulatory authorities. They may also face reputational damage if customers lose trust in their online payment systems.

How can UK fintech companies help businesses comply with PSD2?

UK fintech companies can play a crucial role in helping businesses comply with PSD2 regulations. They can provide businesses with the tools and technologies they need to implement SCA and ensure their online payment systems are compliant with the directive.

For example, providers can offer secure authentication solutions, such as biometric authentication. This provides a convenient and secure way for customers to verify their identities. They can also provide businesses with real-time risk analysis tools. These will help them identify low-risk transactions and exempt them from SCA requirements.

Furthermore, UK fintech companies can help businesses stay up to date with the latest PSD2 regulations. They can ensure businesses remain compliant with any changes or updates to the directive. This will help businesses avoid fines or penalties and maintain customer trust and satisfaction.

Providers can also help businesses take advantage of the opportunities presented by PSD2. For example, they can help businesses access open banking APIs. These enable them to integrate payment services directly into their apps or websites. This can provide businesses with greater control over their payment processes and enable them to offer more customised payment experiences for customers. They can also help businesses navigate the complex regulatory landscape and other payment regulations. They can provide businesses with advice and guidance on compliance issues, as well as assistance with the implementation of new payment technologies and systems.


In conclusion, PSD2 represents a significant change in the payments landscape within the European Union. Businesses that process online payments within the European Union must comply with PSD2 regulations to ensure that their payment systems are secure and protect customer data. However, compliance with PSD2 can also provide businesses with significant benefits, such as increased customer trust and confidence in their online payment systems.

UK fintech companies, like FMPay, can play a crucial role in helping businesses comply with PSD2 regulations. They help them take advantage of the opportunities presented by the directive. FMPay helps businesses offer more convenient and secure payment experiences for customers while staying compliant and growing their commerce.

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