First Payment Services Directive (PSD1) Explained

The First Payment Services Directive, commonly called PSD1, was a European Union directive adopted in 2007 to create a more consistent legal framework for payment services across the EU. It set common rules for payment providers, payment users and electronic payments, and helped establish the modern EU payments market; it was later revised and replaced by PSD2.

What PSD1 was

PSD1 is Directive 2007/64/EC of the European Parliament and of the Council, adopted on 13 November 2007. Its formal subject was payment services in the internal market. The directive sought to make it easier for payment service providers to operate across member states while establishing baseline consumer protections and clearer responsibilities for payment transactions.

Before PSD1, national laws and practices for payments differed considerably. That fragmentation could make cross-border payments less straightforward and create uncertainty about matters such as the execution of a transfer, the handling of an unauthorised payment, or the information a provider had to give a customer. PSD1 was part of the EU’s effort to align those rules. It did not make every payment free, instant or identical: providers could still set prices and offer different services, within applicable law and their customer agreements.

Background and timeline

The directive was adopted in 2007, and EU member states were required to transpose it into national law by 1 November 2009. Transposition means that each country implemented the directive through its own domestic legal measures. In practice, a directive sets objectives for member states rather than functioning exactly like a regulation that applies directly in a uniform form.

PSD1 helped define a category of payment institutions distinct from banks and introduced a framework for their authorisation and supervision. It also supported the development of the Single Euro Payments Area (SEPA), a related initiative intended to make euro credit transfers and direct debits work under common standards across participating countries. PSD1 and SEPA are connected parts of the payments landscape, but they are not the same thing: SEPA concerns payment schemes and standards, while PSD1 established legal rules for payment services.

• 2007: Directive 2007/64/EC was adopted.
• 2009: The deadline for national implementation was 1 November.
• 2015: The EU adopted PSD2, Directive (EU) 2015/2366, to update and broaden the framework.
• 2018: The main PSD2 application date was 13 January, following national implementation.

What PSD1 covered

PSD1 applied to specified payment services when provided within the directive’s scope. These included services that let users place cash into or withdraw cash from a payment account, execute credit transfers and direct debits, and make payments using a card or similar device. It also covered certain money-remittance services and the issuing or acquiring of payment instruments.

The directive set out requirements for payment service providers, including banks and authorised payment institutions, and addressed information and conduct in relation to payment services. Its rules dealt with matters such as the information to be provided before and after transactions, the rights and obligations of users and providers, transaction execution, and liability for unauthorised or incorrectly executed payments. The details depended on the service, circumstances and national implementation; PSD1 should not be read as a promise that every disputed payment would automatically be refunded.

Some activities and transactions were outside its scope or subject to exclusions. The precise boundary depended on the directive’s definitions and the facts of a transaction. For example, the directive did not turn every movement of money into a regulated payment service, and it was not a general law governing all financial products.

How it changed payment services

A central change was the creation of a harmonised framework for payment institutions. Under the directive, eligible providers could seek authorisation to offer covered services, subject to requirements such as safeguarding customer funds and meeting supervisory conditions. It also provided a basis for an authorised provider to offer services in other EU countries through the framework’s cross-border mechanisms.

For customers, the practical importance was greater clarity about their payment provider’s obligations and the information associated with a transaction. Consider a customer who instructs a bank to send a credit transfer: the legal framework addressed the timing and execution of the instruction and how responsibility could be allocated if the payment was unauthorised or wrongly processed. The exact outcome still depended on the applicable rules and the circumstances, such as whether the customer had authorised the payment and when the problem was reported.

PSD1 also encouraged competition by allowing non-bank payment institutions to enter parts of the payments market. That did not mean a payment institution was a bank or that its services necessarily had the same protections as a bank deposit. The provider’s legal status and the specific safeguards applicable to its service matter.

PSD1 compared with PSD2

PSD2 replaced PSD1 and responded to changes in payment technology and the market. Among other changes, it brought certain third-party payment services into a clearer regulatory framework. These services include payment initiation, in which a provider initiates a payment from a user’s account, and account information services, which can consolidate information from multiple payment accounts with the user’s permission.

PSD2 also strengthened and expanded provisions concerning security, including requirements around strong customer authentication in relevant cases. It updated the scope and definitions of regulated services and adjusted the framework for providers. PSD2 is not simply a new name for PSD1: it is a later directive with amended requirements. The current rules and their application should be checked against the relevant EU legislation and national law, rather than inferred from PSD1 alone.

Common misconceptions and practical limits

• PSD1 was not a payment app or payment network. It was legislation establishing rules for payment services.
• It did not make all payments instant or free. Execution rules and fees depended on the type of service, contract and applicable law.
• It did not eliminate national implementation. Member states transposed the directive into domestic law, so legal details could differ in implementation.
• It is not the current successor framework by itself. PSD2 replaced PSD1, although older transactions or historical explanations may refer to PSD1.
• It did not guarantee reimbursement in every fraud case. Liability rules were conditional, and the facts and applicable national provisions mattered.

For a present-day payment dispute, the useful first step is to identify the provider, the type and date of the transaction, and the applicable national rules and contract. PSD1 is useful background, but it should not be treated as a stand-alone guide to current rights.

Frequently Asked Questions

What does PSD1 stand for?
PSD1 means the First Payment Services Directive. Its formal reference is Directive 2007/64/EC, concerning payment services in the internal market.

When did PSD1 take effect?
Member states had to implement it into national law by 1 November 2009. The specific domestic provisions depended on each country’s implementation.

What is the difference between PSD1 and PSD2?
PSD2 is the later directive that replaced PSD1 and updated the framework, including rules addressing certain third-party payment services and security requirements.

Did PSD1 apply to payment institutions as well as banks?
Yes. It established a framework for authorised payment institutions to provide covered payment services, in addition to services offered by banks and other providers within scope.

Is PSD1 still the current EU payments directive?
No. PSD2 replaced PSD1. For current obligations or a specific dispute, consult the applicable legislation and national rules rather than relying only on the earlier directive.

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