PSD2: It’s Time For Digital Banking And E-Commerce To (F)innovate

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Like many of the latest innovations, virtual banking and e-trade have made our lives drastically better. Designed to save money and time, they’ve empowered customers, created thriving marketplaces, and allowed businesses to embody asset-light enterprise models. Open banking turned into quick to follow, allowing customers to take advantage of higher offers, get access to new services and products, and have better control over their cash.

But comfort breeds complacency. These time-saving improvements have started out exposing customers and businesses to formerly unknown dangers, and little has been accomplished to ease online areas, till these days. As customers have become more familiar with the inherent risks of e-trade fraud related to phishing, there has been some other lesser-regarded, darkish facet of digital banking emerging. With open banking, it has become possible to not only defraud a client’s primary bank, but also their other selected financial providers. As open banking takes off, the capability for fraud within fintech, e-commerce, and banking companies will only develop.

To tackle this danger, banking and e-trade establishments need to modernise further, but this time under the watchful eye of European and UK regulators. Coming into pressure on 14 September, the Second Payment Services Directive (PSD2) is about to protect consumers from identity theft and account takeovers. It is likewise taking regulatory compliance and technology challenges to a new stage, turning into a strategic and operational assignment for many companies. Practically, it means that new customers’ identities will have to be tested. But there’s every other pain point that now not even the banks saw coming.

In the past, it was not uncommon to have a joint account or credit card, with only one of the shared holders’ identification confirmed and recognised by a financial institution. This will be under PSD2, and current banking clients will even be re-authenticated. This will place a significant pressure on even the most digitally ahead-thinking establishments, which may additionally need to re-authenticate the identities of tens of millions of customers, as well as introduce plenty more stringent identification verification at the onboarding level. Overall, banks and FS agencies should work hard to look at the long-term benefit, not truely trying to triumph over the short-term pain.

Moreover, the incoming law approach that banks and fintech businesses will have to authenticate every purchaser through at least one of the following standards each time they need to make an online transaction: something they have, something they know, and something they recognize. This may want to include an ID report, a biometric identifier, and a protection question, going beyond a card and a pin, as is the current standard. This introduces an additional layer of protection to guard against the chance of fraud as open banking grows and e-trade volumes increase.