The European Commission has published the long awaited draft proposal of a Payment Services package, including the third Payment Services Directive (PSD3). The PSD3 will be decided by the EC after a round of consultations and it is expected to become EU law in three years meaning it is not to be in effect before 2026 or even later.  

It looks to amend and modernise the current PSD2, addressing the gaps identified in the 2022 evaluation and therefore, addresses many different aspects of payment regulation. This text will provide a very brief overview on the most prominent topics.

The Proposal will replace the existing  PSD2 to become PSD3 and establish a Payment Services Regulation (PSR1) which would have direct effect in all EU member states. PSD3 will also have these changes added to its framework: 

1. The proposal will be taking a significant step towards Open Finance, improving the functioning of open banking, removing the remaining obstacles to open banking services and empowering customers to keep control over their payment data, and enabling new innovative services to enter the market.
2. Another notable development the Proposal brings is granting non-bank payment service providers access to all EU payment systems, with appropriate safeguards, and securing those providers’ rights to a bank account.
3. With the emergence of new types of fraud following the implementation of PSD2, the proposed new regulation will therefore go further and address these new types of threats. It will enable payment service providers to share fraud-related information among themselves.
4. The regulation also aims to increase consumer awareness, strengthen customer authentication rules, extend refund rights of consumers who fall victim to fraud, and create a system for checking alignment of IBAN numbers with their account names mandatory for all credit transfers. These measures collectively contribute to a more secure and resilient payment ecosystem, safeguarding the interests of consumers and fostering trust in their financial transactions.
5. The Proposal aims to improve transparency on account statements and ATM charges, providing consumers with clear information. By doing so, it will ensure consumers continue to make electronic payments and transactions safely and securely throughout the EU, for both domestic and cross-border transactions, whether in euro and non-euro currencies.
6. The proposal also focuses on the availability of cash as a means of payment. Currently, EU retailers can provide cash to a customer without being licenced and supervised as a PSP as long as the customer makes a purchase. This should strike a balance between accessibility and regulatory oversight, and ensure necessary safeguards for consumer protection are available.
7. Under the new rule, retailers will be allowed to provide amounts of up to 50 euros to customers without obtaining a license or being an agent of a Payment Institution, even without the mandatory purchase. The measure also proposes to allow certain ATM operators to operate ATMs without a license.  

The 2022 evaluation pointed out the overall public concern among consumers regarding the sharing of  their financial data. The findings highlighted a lack of  trust in financial service providers over privacy and digital security as well as a general sense of not having control over data usage.   

As a result, PSD3 has been designed with the aspiration of encouraging innovation in financial services and financial products to stimulate competition in the financial services sector. PSD3 focuses on the authorisation and supervision of Payment Institutions (PIs) and Electronic Money Institutions (EMIs). It is also important to note that existing authorised PIs and EMIs will need to obtain a new authorisation under PSD3 within 24 months of the implementation of the new rules. This will help ensure that all firms operating under PSD3 are fit to operate and ultimately keep consumers and businesses safe.  

Author: Nina Huelsken, Associate, Frankfurt, Payments Consulting Network 

With an impressive track record spanning over 18 years in the payments industry, Nina has held various management positions and provided board-level guidance to international financial institutions, with a focus on strategic planning and regulatory compliance. 

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