With the introduction of the EU’s revised Payment Service Directive (PSD2), the financial system is witnessing transformation in the banking system, along with the emergence of the concept of Open Banking.

On one hand, PSD2 aims to drive innovation and competition in the market by asking banks to open their infrastructure to third-party providers (TPPs) with application programming interfaces (APIs), while on the other hand, it requires banks to reconcile authentication systems with frictionless user experience.

The number of TPPs connecting to banks’ systems will increase, boosting the risk of unauthorized access to customer data or even fraudulent initiation of payments. It also becomes very important for banks to move to a more standardized security architecture and establish a security gateway for pre-validation of API calls, and more. The strict PSD2 security requirements stated in the Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and Common Secure Communication (CSC) could harm user experience, but the RTS provides a way out: behavioural biometrics.

With the arrival of new entrants in-market, banks will face increased competition. Thus, to retain their position in the payments space, banks could turn innovative security into a market differentiator.

Hence, we can say that while PSD2 aims to protect consumers from fraud by increasing payments security measures around biometrics, it also enhances competition and innovation.

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