Why does PSD2 increase both competition and security expectations for payment providers?

PSD2 broadens the market by allowing payment initiation and account information services to operate under a regulated framework. That increases competition, but it also raises the bar for security because more parties can touch payment data and transaction flows. Providers must therefore combine interoperability with rigorous authentication, authorisation, and governance to protect confidential financial information.

How PSD2 changes the market structure for payment providers

PSD2 changes competition by opening regulated access to payment accounts through payment initiation and account information services. That reduces the old closed-rail model and lets licensed third parties compete on user experience, aggregation, and payment initiation. For providers, the practical effect is not just more competition, but more interoperability, more integration points, and more scrutiny over how access is granted and governed.

Why security expectations rise when more parties can touch payment flows

Once a regulated ecosystem includes account access by third parties, security can no longer be treated as a single-provider boundary. Each new participant increases the number of identities, credentials, interfaces, and trust relationships that must be controlled. That pushes providers toward stronger authentication, more granular authorisation, tighter data handling, and clearer governance over who can initiate or observe payment activity.

In practice, the bar rises because payment security is now judged across the whole access chain, not only inside the core bank or payment institution. Interoperability must coexist with customer consent, secure APIs, fraud resistance, and resilient incident handling, which means weak integration controls can become a market-wide weakness rather than a local defect.

What PSD2 means for authentication, authorisation, and data protection

PSD2 expectations are best understood as a shift from simple access control to controlled delegated access. Providers must prove that a third party is entitled to act, that the customer consented, and that the access is limited to the permitted purpose. Strong customer authentication, transaction binding, and least-privilege authorisation become part of the competitive baseline rather than optional hardening.

That also raises expectations for confidential financial information. Providers need to minimise data exposure, constrain what account information is returned, and preserve traceability across the request path. The security question is no longer only “can the caller connect?” but also “can the caller only do what PSD2 allows, and can that decision be defended later?”

Risk and Threat Considerations

Opening payment access to more regulated actors increases the attack surface for credential abuse, consent manipulation, API misuse, and overbroad data access. The main risk is not simply an external breach, but a design where authorised access is too broad, too persistent, or too hard to audit.

Failure mechanism: Weak delegation controls, poor API authorisation, or fragile customer authentication can let a valid participant exceed its intended scope, turning a permitted integration into a channel for account abuse, fraud, or data leakage.

Impact: The result can be unauthorised payment initiation, exposure of sensitive account data, customer harm, regulatory findings, and loss of trust in the broader open-banking ecosystem.

Standards & Framework Alignment

This section maps relevant standards and security frameworks to the operational risks and controls described in this guidance.

OWASP API Security Top 10 addresses the attack and risk surface, while NIST SP 800-53 Rev 5 sets the governance and control requirements practitioners need to meet.

Framework	Control / Reference	Relevance
OWASP API Security Top 10	API5 — Broken Function Level Authorization	PSD2 relies on tightly bounded delegated actions across payment APIs.
	API2 — Broken Authentication	Third-party payment access depends on strong caller authentication and trust.
Recommendation — Enforce function-level checks so third parties can only invoke PSD2-permitted actions. Harden authentication so only verified providers and users can reach payment functions.
NIST SP 800-53 Rev 5	IA-5 — Authenticator Management	PSD2 security depends on managing credentials and authenticators across shared access flows.
	AC-6 — Least Privilege	Open banking access must be constrained to the minimum permitted scope.
	AU-2 — Event Logging	PSD2 requires traceable access and payment activity across multiple parties.
Recommendation — Rotate, protect, and expire authenticators used in payment access paths. Limit each participant to the smallest set of payment actions and data it needs. Log consent, access, and payment events so delegated actions remain auditable.

Practitioner Guidance

What to verify: Treat consent, identity proofing, strong authentication, and authorisation scope as separate checks. A provider should be able to show not only that a third party is licensed, but also that each call is bounded to the minimum permitted action and data set.

What practitioners underestimate: Many PSD2 failures are governance failures disguised as integration issues. If access reviews, logging, API policy enforcement, and exception handling are weak, competition increases faster than control maturity.

Practitioner takeaway: The right PSD2 posture is not “open access,” but controlled openness, where interoperability is matched by narrow delegated authority, traceable decisions, and security controls that scale with the number of participants.