An authorized payment institution is a finance business registered within the terms of the European Banking Authority directive PDS2.
Within the European Single market, made up of the European Union (EU) and the European Economic Area (EEA) countries, the European Banking Authority (EBA) established a central register that contains information about payment and electronic money institutions authorised or registered to conduct business as financial service providers. The register is established based on the requirement of Article 15(1) of Directive (EU) 2015/2366 on payment services in the internal market – also known as PSD2.
The EU Payment Services Directive 2 (PSD2) aims, inter alia, to enhance the transparency of the operation of payment institutions that are authorised by, or registered with, competent authorities (CAs) of the member states, and ensure a high level of consumer protection in the EU, by providing for easy public access to the list of all natural and legal persons providing payment services.
Article 15(1) of PSD2 payment services regulations requires the central payment services regulator (the European Banking Authority – EBA), to develop, operate and maintain an electronic central register that contains information as notified by competent authorities in accordance with paragraph 2 of Article 15. The paragraph further specifies that the EBA must make the register publicly available on its website, and allow for easy access to and easy search for the information listed, free of charge.
What are payment services?
The payment services definition was made by the EU payment services directive, that established the same set of rules on payments across the whole European Economic Area covering all types of electronic and non-cash payments, such as:
- Credit transfers
- Direct debits
- Card payments
- Mobile and online payments
The directive laid down rules about the information that payment services providers have to give to consumers and about the rights and obligations linked to the use of payment services.
What is European Payment Services Directive PSD2?
The PSD2 contains two main sections:
- The “market rules” described which type of organizations can provide payment services. Next to credit institutions (i.e. banks) and certain authorities (e.g. central banks, government bodies), PSD2 talks about electronic money institutions (EMI), created by the E-Money Directive, and created the new category of “payment institutions” (PI) with its own prudential regime rules. Organizations that are neither credit institutions or EMIs can apply for authorization as a payment institution if they meet certain capital and risk management requirements. The application can be made in any EU country where they are established and they could then “passport” their payment services into all other EU member states without additional PI requirements.
- The “business conduct rules” specify what transparency of information payment service institutions need to provide, including any charges, exchange rates, transaction references and maximum execution time. It stipulates the rights and obligations for both payment service providers and users, how to authorize and execute transactions, liability in case of unauthorized use of payment instruments, refunds on payments, revoking payment orders, and value dating of payments.
Each country has to designate a “competent authority” for prudential supervision of the PIs and to monitor compliance with business conduct rules, as transposed into national legislation. A payment service provider license is issued by the competent authority, and is valid in all other EU and EEA countries.
How will PSD2 affect banks?
The rise of Electronic Money Institutions (EMIs) and Payment Institutions (PIs) has been the greatest threat to the conventional banking markets, and most “bricks and mortar” banks are struggling to catch up with the growth of this sector, in many cases by buying out new EMIs in order to get a head start. All banks are starting to offer the wide range of services for electronic transactions covered by PSD2, but the smaller and less restricted financial institutions are able to keep costs down by not having to support street branches, and so can generally provide the same services for lower charges, and offer better interest rates for deposits.
Does PSD2 apply to credit cards?
Due to PSD2 customers are seeing the lifting of additional fees for online payment via credit card or bank transfer. It also changes some of the rules by which transactions can be paid for with credit cards, mainly because of the need now for two-level authentication. PSD2 rules state that it is no longer sufficient to simply ask for a customer’s credit card and CVV for online transactions, but a double authentication method is now required to authorize the transaction. This double authentication is known as SCA or Strong Customer Authentication, and it’s about having to use something additional to the PIN or CVV when paying with a card, like a temporary security code or token sent by SMS or a mobile app for example.
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