Guide to Payment Services Regulations

According to the Payment Services Directive (PSD2), which was implemented to all EU member states in 2018, payment services is defined as any business activity associated with their 8 annexed types. You are likely providing a payment service if you are either:

• An online marketplace
• A business providing booking services.
• A business bringing sellers and customers together.

To fully understand payment services, which is a relatively broad term as it can be used throughout many aspects of the payment ecosystem and its processes. Providers of payment services are known as a PSP.

What is a PSP?

A PSP is a Payment Service Provider, or also known as merchant service providers. They help merchants to accept payments such as debit or credit cards and bank transfers. Businesses can collect their payments easily using a merchant account and payment gateway, provided by their PSP.

So, what is a PSP’s role in the payments industry? To allow merchants to process payments via numerous methods, a payment gateway is available 24/7 to authenticate and transfer payment information securely between groups and banks. Put plainly, a PSP adopts the latest innovations in the payments industry and allows you to manage all transactions through a single channel and configure systems accordingly, as and when new updates are made to such payment gateways. Essentially, a PSP is a third party that works with payment processors to manage the transaction process to completion.

A payment service provider does just that, provides a service. Since PSPs support multiple payment types, they can also support multiple processing and settlement currencies to make global transactions easier and more secure. For example, if a payment is made via a bank card, the transaction is first authorised by a PSP. This means that your business is able to collect the payments made to it, facilitate the technologies their potential customers choose to pay through, and saves the merchant time and effort to adapt to new payment technologies. 

Using a payment service provider means you aren’t tied to one payment network or bank, so you can integrate to multiple payment methods through one platform. This makes the payment process much easier for international and national transactions and creates an uncomplicated experience for the customer and merchant. So, you can spend your time focusing on the customer experience and core business without worrying about receiving your payments.

Payment Service Regulations from Around the World

PSD2 & Payment Services in the E.U.

The PSD2 was transposed into national law to make it an offence to provide payment services without the correct FCA authorisation or registration. If you’re unsure whether you qualify for this, we advise that you seek legal advice. Although, you are likely affected by these regulations if you provide payment services as part of a service package, or if your business receives money from a customer before relaying it to the seller. 

The Payment Services Directive aims to support innovation and competition in the retail payments industry, while also enhancing electric payment transaction security and customer financial data protections. This calls for payment service providers to require strong customer authentication, transaction and device monitoring, and universal, high standards of communication for incident reporting and security risks.

Brexit & Payment Service Regulations in the U.K.

As the PSD2 is an industry-wide standard, and the U.K. have already had to implement many of the updated regulations set out in 2018, there is a lot of speculation about payment service regulations post Brexit. Although due to COVID-19  the Financial Conduct Authority (FCA) has already issued compliance delays, such as the Strong Conduct Authentication (SCA) which is now to be applied for all e-commerce card transactions in the UK by the newly revised date; 14th September 2021. From 2022, PSPs will be required to provide additional information for transfers to or from the UK in euro, such as the name and address of the payer.

It’s assumed that moving forward, Britain, as a leader in open banking, will continue to comply with EU regulations in order to remain a global competitor and not stifle the industry’s growth opportunities. For example, Iceland has completely adopted PSD2 and eIDAS despite not being a part of the EU, and GDPR is already said to continue to apply to the UK and EU to protect customer data. Particularly as these industry standards for transaction security and digital IDs have also been adopted in markets around the world, including Canada and Latin America.

Alternatively, there is speculation that global markets will choose to adopt the UK’s already broader Open Banking standards as a blueprint. Or that we could see further adjustments to regulation in the future to incorporate payment technologies such as biometrics, which continue to prove successful.

Payment Service Regulations in the U.S.

There is no PSD2 equivalent in the USA, though they are governed by data protection regulations and non-regulatory industry standards such as the National Institute of Standards and Technology (NIST). In America, payment services are not expected to see many changes in regulations. Their current adoption of neutrality means that their industry regulation is considered by some as more durable and flexible to future financial change. Regardless of payment technology and business models, the payment services are subject to the same rules and standards governed by the (FDA).

How Imburse can help

At Imburse, we understand the world of payments is constantly evolving, as more payment technologies are adopted, strict industry standards are not far behind.  From one-click online payments, e-wallets, and cryptocurrencies, the growing popularity of the online payment sector not only co-exists with traditional methods such as cash, payment cards, and cheques but has also begun to surpass it. At Imburse, we make the world of payments simple and keeps you up to date with compliance and security for all of your transactions. Imburse Payments allows you to connect to multiple PSPs so you can benefit from a range of global payment ecosystems from a single, secure platform. Get in touch with us today to see how we can help your business.