PSD2 and Open Banking in Europe: What Fintech Businesses Need to Know
PSD2 fundamentally reshaped how payment and financial data services operate in Europe, enabling the open banking ecosystem that's created both new opportunities and new compliance requirements for fintech businesses.
What PSD2 Actually Enables
- Account Information Services (AIS) — authorized third parties can access a customer's account data (with consent) to provide services like budgeting apps or financial aggregation
- Payment Initiation Services (PIS) — authorized providers can initiate payments directly from a customer's bank account, enabling alternatives to traditional card payment rails
- Strong Customer Authentication (SCA) — mandatory multi-factor authentication requirements for most electronic payments
Practical Implications for Fintech Businesses
- Providing AIS or PIS services in the EU requires proper regulatory authorization, typically through a national competent authority
- SCA requirements affect checkout flow design — payment flows need to accommodate mandatory strong authentication steps
- API integration with banks under PSD2 open banking standards enables new product possibilities (like direct bank payment options) beyond traditional card processing
The Business Opportunity Beyond Compliance
Open banking under PSD2 has enabled genuinely new payment products — direct bank-to-bank payment options with lower processing fees than card payments, and financial aggregation services that weren't previously possible without extensive individual bank partnerships.
Frequently Asked Questions
What is PSD2 in simple terms?
PSD2 (Payment Services Directive 2) is EU regulation that enables open banking — requiring banks to provide secure API access to account data and payment initiation for authorized third-party providers, with customer consent.
Does a non-European fintech business need to worry about PSD2?
Yes, if you're providing payment services or account information services to customers in the EU/EEA — PSD2 obligations apply based on where you're providing services, similar to other EU digital regulations.
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