PSD2, Open Banking, and Their Impact on Payment Orchestration

PSD2 (Payment Services Directive 2), which came into effect in Europe in 2018, launched one of the most fundamental regulatory changes in the payments sector. This directive, which forces banks to share customer account data with third parties, gave birth to the concept of open banking and increased the strategic importance of payment orchestration platforms.

What Is PSD2?

• Open API Obligation: Banks are required to give third-party payment service providers (TPPs) account access with the customer's consent.
• SCA (Strong Customer Authentication): Two-factor authentication became mandatory for the vast majority of online payments. EMV 3D Secure is the most widely used technical solution to meet this requirement.
• AISP and PISP roles: Account Information Service Provider and Payment Initiation Service Provider roles were regulated, giving rise to new business models.

What Is Open Banking?

Open banking is the sharing of financial data and payment initiation capabilities with third parties through bank APIs, with customer consent. This enables fintech companies to build products integrated with bank infrastructure, and allows account-to-account (A2A) payments to be made bypassing card networks.

Impact on Payment Orchestration

• New payment channels: Account-to-account payment via open banking APIs has become a new channel that can be integrated into orchestration platforms.
• SCA management: Consistently meeting SCA requirements when working with multiple banks and PSPs can be provided through the orchestration platform's centralized management layer.
• APM growth: The rise of alternative payment methods and the spread of open banking increases the number of channels that need to be managed in the orchestration layer.
• Data richness: Account and transaction data obtained through open banking APIs can make smart routing decisions more accurate.

Conclusion

PSD2 and open banking are fundamentally transforming the payments ecosystem. To remain standing and benefit from opportunities in this transformation, it is critical to have flexible and extensible payment infrastructure. Payment orchestration platforms are the most effective way to adapt to this changing ecosystem.