In this Article
The Payment Services Directive (PSD) is a regulatory framework established by the European Union (EU) to govern payment services within the EU and European Economic Area (EEA). Max Frilot goes through the three versions of the regulation and provides their respective key features. There are three versions of the PSD: PSD1, PSD2, and PSD3.
PSD1
- The first Payment Services Directive, PSD1, was introduced in 2007.
- Its scope originated as a single market for payment services within the EU.
- Acting as a regulatory framework for payment services, it included credit transfers, direct debits, and card payments.
- PSD1 established rules for payment service providers (PSPs), whilst also setting out the rights and obligations of consumers and businesses in relation to payment services.
- Finally, PSD1 promoted competition, innovation, and security in the payment services market.
PSD2
- The second Payment Services Directive, (PSD2), was passed in 2015.
- Building upon the previous provision, it introduced new requirements and regulations.
- One key objective of PSD2 was to enhance consumer protection and increase security of electronic payments.
- Furthermore, PSD2 extended the obligations of its predecessor. Hence, it included payments to and from third countries, not just within the EU.
- Additionally, it aimed to foster innovation and competition by opening the payment services market to new players, such as third-party providers (TPPs).
- PSD2 introduced the concept of open banking, allowing customers to share their financial data securely with authorised third parties.
- It also mandated strong customer authentication (SCA) for electronic payments to ensure the security of transactions.
- Ultimately, PSD2 aimed to create a more integrated and efficient payments’ market within the EU and EEA.
PSD3
- The third Payment Services Directive (PSD3), is an upcoming framework that will regulate electronic payments and the banking ecosystem within the European single market area (EEA).
- Specific details and requirements of PSD3 are yet to be determined, since it is still in the consultation and discussion phase.
- Stakeholders expect PSD3 to build upon the provisions of PSD2 and potentially broaden its scope.
- Experts are also earmarking PSD3 as a licensing and authorisation mechanisms for payment firms.
The goal of PSD3, like its predecessors, is to ensure the safety, efficiency, and transparency of payment services within the EU and EEA.
In summary, PSD1 established the initial regulatory framework for payment services within the EU, while PSD2 expanded upon it by introducing new requirements and regulations, including open banking and strong customer authentication. PSD3 is an upcoming framework that is expected to build upon the provisions of PSD2 and further regulate electronic payments and the banking ecosystem within the EEA.
What are the Key Features of PSD3?
The European Commission has proposed a comprehensive set of measures to modernise the payments and financial sector in the digital age. Ultimately, the EC aims to improve consumer protection and foster competition. PSD3 should empower consumers to access a wider range of affordable financial products and services by securely sharing their data.
The proposed measures build upon the existing Payment Services Directive (PSD2), and introduce a new Payment Services Regulation (PSR) to address evolving market dynamics and risks. Moreover, the revised Payment Services Directive (PSD3) aims to address emerging challenges and enhance consumer rights. So far, it includes provisions to combat and mitigate payment fraud by facilitating information sharing between payment service providers. This will increase consumer awareness and strengthen customer authentication rules.
List of Key additions in PSD3
Consumers, Cash Flow & Data Protection
- PSD3 introduces extended refund rights for consumers who fall victim to fraud.
- To ensure transparency, the proposal seeks to improve information on account statements and ATM charges.
- It also seeks to enhance the functioning of open banking by removing remaining obstacles and giving customers more control over their payment data.
- It enables customers to share their data with data users, such as financial institutions and fintech firms, in a secure machine-readable format. This facilitates the provision of new, cheaper, and better data-driven financial products and services, including personalised online advice and financial product comparison tools. Financial institutions are obligated to make customer data available to data users by establishing the necessary technical infrastructure, subject to customer permission.
- Customers are to retain full control over their data. Furthermore, they shall have the authority to decide who can access their data and for what purposes.
- The proposal includes requirements for dedicated permission dashboards and strengthened protection of customers’ personal data in line with the General Data Protection Regulation (GDPR). • Standardisation of customer data and technical interfaces is also emphasised as part of financial data sharing schemes.
- Additionally, incentives for data holders to provide high-quality interfaces for data users are outlined, including reasonable compensation.
Banking, PSPs, B2B Integration
- The revised directive also focuses on creating a level playing field between traditional banks and non-bank payment service providers. Thus granting non-banks access to all EU payment systems with appropriate safeguards.
- By enacting most payment rules through a directly applicable regulation, the proposal strengthens harmonisation and enforcement, reinforcing provisions on implementation and penalties.
- Moreover, the proposal aims to improve the availability of cash by allowing retailers to provide cash services without purchase requirements and clarifying rules for independent ATM operators.
- The legislative proposal for a framework for Financial Data Access aims to establish clear rights and obligations for managing customer data sharing beyond payment accounts.
- Clear liability regimes for data breaches and dispute resolution mechanisms are proposed to address concerns and ensure data holders are incentivised to make data available.
PSD3 Effects?
Stakeholders expect these proposals to stimulate innovation, competition, and access to financial services. Consumers should benefit from improved personal finance management, and enhanced advice. In addition, we expect smoother, more affordable processes – such as switching products and using comparison services. SMEs should eventually have access to a broader range of financial services and products based on the easier accessibility of creditworthiness data.
The proposed measures align with the EC’s commitment to modernise the retail payments industry. Coupled with fostering instant payments, and establishing a European financial data space. All part of a broader European data strategy, PSD3 complements other initiatives, such as the Data Governance Act, Digital Markets Act, and Data Act proposal.
Nevertheless, PSD3 is subject to review and approval by the European Parliament and Council before becoming an enforceable regulation!
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