Are FIDO Passkeys SCA and PSD2 Compliant?
Tags: cybersecurity, ux, psd2, passkeys
Published: 2024-03-06 08:00:00

## Introduction: PSD2 Passkeys

In online banking, the demand for a balance between security and user experience has been a significant challenge for many, many years. The introduction of passkeys as a phishing-resistant multi-factor authentication (MFA) solution presents an interesting approach, particularly in the context of the Revised Payment Services Directive (PSD2) compliance. However, for many players in the banking sector it remains unclear if passkeys are PSD2 compliant. This article should help to answer this question.

**_[Read full blog post here](https://www.corbado.com/blog/psd2-passkeys)_**

## Understanding PSD2 and Its Implications
PSD2, a regulatory framework devised by the European Union, aims to enhance the security, competitiveness, and innovation within the European banking sector. One of its core mandates is the implementation of Strong Customer Authentication (SCA), designed to significantly reduce fraud and secure electronic payments. Passkeys, in this regard, emerge as a suitable solution, capable of meeting PSD2's demands without compromising user convenience.

## The Evolution of Banking Authentication
Over the years, banking authentication has seen various iterations, from PINs and TANs to biometrics and mobile banking apps. Each stage aimed to increase security, albeit often at the expense of user convenience. Passkeys represent the latest evolution, offering a seamless and secure authentication experience that effectively addresses the limitations of previous methods.

## Phishing: The Biggest Threat in Banking Security

Phishing attacks have consistently posed a significant threat to banking security, exploiting both human psychology and technological vulnerabilities. Traditional authentication factors, such as PINs, passwords, and SMS OTPs, remain susceptible to phishing, undermining the security of digital banking services. Passkeys, with their inherent non-phishable nature, offer a robust defense against such attacks, changing the security paradigm by eliminating the most common attack vector.

## PSD2 Compliance: The Role of Passkeys

A critical question for stakeholders in the payment, fintech, and banking sectors is whether passkeys meet PSD2's compliance requirements. The distinction between synced passkeys (multi-device) and non-synced passkeys (single-device) is crucial in this discussion. While synced passkeys offer convenience, non-synced passkeys provide enhanced security through device binding, making them a compelling option for PSD2 compliance.

## The Shift in Regulatory Landscape

Innovative fintechs and neo-banks, such as [Finom](https://www.corbado.com/blog/finom-passkeys) and [Revolut](https://www.corbado.com/blog/revolut-passkeys), are leading the charge in adopting passkeys, even in the absence of explicit regulatory guidance. Their proactive stance is not only about enhancing customer data security but also about urging regulators to adapt their frameworks to accommodate new technologies like passkeys.

## Embracing Passkeys: A Call to Action for Banks and Fintechs

For traditional banks and fintechs, the integration of passkeys represents an opportunity to significantly bolster both security and user experience. Engaging with regulators, learning from neo-bank best practices, and strategically transitioning to passkeys are essential steps towards this integration. This approach not only meets the demands of PSD2 compliance but also positions these institutions at the forefront of digital banking innovation.

## Conclusion
Passkeys stand at the intersection of security and convenience, offering a solution that can not only meet the regulatory requirements of PSD2 but also address the user experience challenges in digital banking. As the industry moves forward, the adoption of passkeys could mark a new era of secure and user-friendly digital banking services. For those interested in delving deeper into the technicalities and broader implications of passkeys, [our comprehensive guide](https://www.corbado.com/blog/psd2-passkeys) offers valuable insights and implementation tips.