The European Commission’s proposal for Payment Services Directive 3 (PSD3), announced on 28 June 2023, marks an important step in modernizing payment services and reshaping the financial sector. Aiming to transition payments into the digital age while maintaining consumer protection and trust, PSD3 builds upon its predecessor, PSD2, addressing its limitations and expanding its scope.
This article will focus on the landscape of PSD3, exploring its foundation, objectives, and the profound impact it promises on the financial industry, consumers, and businesses.
Background: From PSD2 to PSD3
The transition from PSD2 to PSD3 represents a significant shift in the European financial landscape. PSD2, introduced in 2015, aimed to foster open banking by enabling financial data sharing between banks and third-party service providers while improving consumer protection and security.
However, its implementation revealed several areas for improvement, particularly in creating a level playing field between banks and non-bank Payment Service Providers and addressing the challenges in open banking interfaces across the EU.
PSD3 emerges as an evolution, not a revolution, building upon PSD2’s framework. It seeks to address these gaps and further adapt the EU payments framework to the evolving demands of the digital age.
European Commission informs us about PSD3 in Financial data access and payments package publication as follows:
The Commission’s proposes to amend and modernise the current Payment Services Directive (PSD2) which will become PSD3 and establish, in addition, a Payment Services Regulation (PSR). These will ensure consumers can continue to safely and securely make electronic payments and transactions in the EU, domestically or cross-border, in euro and non-euro. Whilst safeguarding their rights, it also aims to provide greater choice of payment service providers on the market.
The Commission is also putting forward a legislative proposal for a framework for financial data access. This framework will establish clear rights and obligations to manage customer data sharing in the financial sector beyond payment accounts. In practice, this will lead to more innovative financial products and services for users and will stimulate competition in the financial sector.
Key Objectives of the PSD3 Proposal
PSD3 is designed with distinct objectives to enhance the EU’s financial services sector:
- Combating Payment Fraud: Introducing stronger measures against fraud, including enhanced consumer awareness and more robust authentication processes.
- Improving Consumer Rights: Focusing on greater transparency and clearer information regarding financial services, such as account statements and ATM charges.
- Leveling the Playing Field: Ensuring fair competition by granting equal access to payment systems for banks and non-bank PSPs.
- Enhancing Open Banking: Removing barriers and granting consumers more control over their financial data, fostering innovation and new service entries.
- Improving Cash Availability: Facilitating cash services by retailers and clarifying rules for independent ATM operators.
- Strengthening Harmonization and Enforcement: Enhancing the consistency of regulatory standards and enforcement across the EU to ensure a unified payments market
Financial Data Access and Consumer Control
Expanding beyond PSD2, PSD3 emphasizes broader financial data access and customer control. It introduces a framework comprising six pillars, including allowing customers to share their data, obligating data holders to provide access to data users, and standardizing customer data and technical interfaces. This framework is designed to enhance trust in data sharing and empower customers with full control over their data.
Impact on the EU and SEPA Payment Space
The implementation of PSD3 and PSR1 promises a comprehensive transformation in the EU and SEPA payment space. It aims to bolster user protections, foster competition, standardize enforcement of regulations, and improve financial access, thus enhancing the functionality and security of digital payments and data management.
Specific Changes Introduced by PSD3
PSD3 introduces several specific changes. It strengthens the rules around customer authentication, extends refund rights for fraud victims, and mandates verification of payees’ IBANs. It also addresses temporary fund blockages, enhances transparency in account statements, and provides clearer information on ATM charges. For non-bank PSPs, it ensures access to EU payment systems and safeguards their rights. Open banking removes barriers and gives customers more control over their payment data.
Implications for the Finance Industry
The finance industry is set to experience significant changes under PSD3. Enhanced consumer protection measures will require financial institutions to adapt, fostering trust in electronic payments and services. Leveling the playing field between banks and non-banks will spur competition and innovation. Open banking advancements under PSD3 will pave the way for more personalized and innovative financial services, streamlining processes like product comparisons and switching financial products. For SMEs, greater access to creditworthiness data will lead to more competitive loan options.
Preparing for PSD3: What Businesses Need to Do
Businesses, especially those operating in the UK and EU, need to analyze the commercial impacts of PSD3. Conducting gap analysis exercises will be crucial to understand potential impacts and divergences. This proactive approach is vital for businesses to adapt to the new regulatory landscape and capitalize on the opportunities PSD3 presents.
Implementation Timeline and Future Outlook
While the exact timeline for PSD3’s implementation remains unclear, it is expected to follow a similar pattern to PSD2, with a transposition period for European countries followed by a compliance period for companies. The future of financial services under PSD3 looks promising, with expectations of more accessible, competitive, and innovative financial solutions
How Can EMBank Help?
EMBank is committed to providing comprehensive financial services to businesses involved in international commerce. Whether your business requires the speed and efficiency of SEPA for European transactions, the global reach of SWIFT for international trade, or the stability of TARGET2 for Euro settlements, EMBank can assist you in making informed decisions.
Established in Lithuania and licensed by the European Central Bank, EMBank provides a Banking as a Service offering, combined with Safeguarding Account, Business Account, and Accumulative Account types, as well as payment options through SEPA, Swift, and Target2.
Please keep in mind that the above information has been prepared or assembled by the EMBank and is intended for informational purposes only. Some of the information may be dated and may not reflect the most current legal developments.
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