Payment Service Directive 2 (PSD2)

Payment Service Directive 2 (PSD2), the new regulatory initiative after PSD that put the legal framework of SEPA in place in Europe, is all set to accelerate payments innovation by opening up the payments market, enabling new players to come in and take some of the space held by the banks and cards companies

What is PSD2 all about?

PSD2 creates a whole new set of institutions which will enable them to provide services which were typically under the remit of Banks

Impact of PSD2

This has the potential to disrupt the entire payments industry. One example of this is; Assume you are doing an online shopping (EBay, Amazon etc.). You select what you want to buy and make the payment using debit card or credit card. The payment process today works as below:

With PSD2 coming into play, the scenario is going to be different. Merchants can gain access to the customer’s account provided the customer gives permission to the merchants. This would make the middlemen (Merchant Acquirer and Card Schemes) irrelevant.

For customers who have saved their card details with merchants, this might not make any difference if they have given permission to the bank and merchant to swap data. However for big businesses, it would be saving on a lot of middle man charges. This could also be of benefit to the customer if the banks decide to pass on the benefit to their customers.

  • Extension in scope of regulated transactions in multi-currency
  • Payment Service Provider (PSP) are obliged to ensure a stricter customer authentication
  • Execution and application of adequate and effective complaint resolution procedures with maximum 15 days for customer compliant resolutions
  • PSD2 will regulate payment initiation service providers (PISPs) and the initiation of payments
  • Third party providers are granted access to the payment service user’s account for account information aggregation services.

PSD2 is going to invoke competition among banks and it is going to be a first mover advantage. Banks providing Value added services can take business from other Banks by being the PRIMARY bank. There is also possibility of additional revenue streams by charging for AS-PSP

Pros and Cons of PSD2


  • Consumer can have a single window view of all accounts across banks
  • Merchants can reduce their charges compared to cards interchanges
  • Immediate settlement into merchant account
  • Banks can position themselves as AISP


  • In the event of a loss, it may be difficult to identify the responsibility between PISPs and ASPSPs
  • Transformation to comply with PSD2 would be a costly affair

VirtusaPolaris expertise on PSD2

Our 25 years of expertise on payments has gained us strong experience across the length and breadth of payments. We are already working closely with a leading bank on solutions of which PSD2 is also part of the roadmap.
We could help you meet your challenges by leveraging our expertise on consulting, transformations backed by our in depth techno functional knowledge on payments domain. We are in tune with the disruptions happening across the payments space.

Our solution on PSD2

Key Features

  1. API Layer – Complete API suite which enables.
    • Integration & Views on core banking systems to isolate performance issues
    • Entitlement Engine – Granular but robust entitlement engine
    • App Store and Configuration Workbench
  2. SMART Tokens - Programmable tokens and smart contracts.
  3. Mandate/Service Management – Who has provided which access to whom
  4. Access & PKI authentication for external access