The Payment Service Directive 3 (PSD3) and Payment Services Regulation (PSR) was announced in June 2023 by the European Commission. For merchants, these changes are essential to understand, as they aim to keep pace with rapid innovations in the sector. By modernising the regulatory framework, PSD3 and PSR are set to create a more dynamic, competitive, and secure environment for businesses across Europe.
In this article, we explore what these regulatory changes mean and how to prepare for the future of these new payment regulations. Let’s get into it.
What is Payment Services Directive 3 (PSD3)?
PSD3, also known as the Third Payment Services Directive, is the anticipated successor to Payment Services Directive 2 (PSD2) by the European Union. It proposes new authorisation rules for payment services and electronic money organisations. PSD3 aims to significantly strengthen the foundations of Open Banking established by PSD2, with a robust focus on open finance and advanced security measures to protect consumers.
How does PSR relate to PSD3?
The PSR and PSD3 are closely linked. The difference is that PSD3 focuses on licensing and supervising payment institutions, while the PSR introduces new provisions alongside the existing mandates of PSD2. The PSR will provide detailed rules and technical standards to implement the objectives outlined in the PSD3 directive. The new PSD3 rules aim to achieve strict harmonisation across EU member states, level the playing field for payment providers and enhance the protection of customers from fraud.
What is the timeline for PSD3 and PSR implementation
The payments industry awaits the release and implementation of PSD3 and PSR. The final version of PSD3 and PSR is expected to be unveiled in late 2024 or early 2025, though the specific implementation date has not yet been finalised. A transition period is likely to be announced for merchants and financial services institutions like Payment service providers (PSPs) to adapt to these new requirements when they are established.
What are the changes expected in PSD3?
PSD3 is set to introduce significant updates to the EU's regulatory framework for payment services. As the financial industry prepares for the rollout of PSD3, let's examine the key areas where these updates will make the most impact.
Enhanced and streamlined security measures
Our recent Open Banking study highlights that security is the top concern for 60% of consumers, with privacy following at 41%. PSD3 is expected to build on the Strong Customer Authentication (SCA) mandate by PSD2 to enhance security while streamlining the process. This could introduce the adoption of more advanced biometric authentication methods and improved fraud detection systems.
Additionally, financial institutions might only need to apply SCA when granting initial access to payment account data through Open Banking, unless there are valid concerns about potentially fraudulent activity.
Expanded scope of regulated services
The PSD3 is anticipated to extend the parameters of payment services. It may potentially in scope encompass innovative technologies such as cryptocurrencies and decentralised finance (DeFi) platforms.
Open Banking and data sharing reforms
PSD3 will revolutionise the concept of Open Banking by transitioning into open finance under its regulations. This will enable broader data sharing across various financial services, going beyond just payment accounts.
What are the benefits of PSD3 and PSR for merchants?
The European Commission's proposal for PSD3 (Payment Services Directive 3) and PSR (Payment Services Regulation) offer several significant benefits for merchants. Some of these include:
Enhance fraud protection
The proposal introduces heightened measures to combat payment fraud and mitigate its impact. This includes allowing payment service providers to share fraud-related information and enhancing customer authentication rules. For merchants, these measures can help create a safer transaction environment and reduce chargebacks due to fraudulent transactions, delayed delivery or faulty products.
Seamless cross-border transactions in the EU with harmonised payment rules
One of the key benefits of PSD3 and PSR is the introduction of more consistent rules across EU member states, making it easier for payment providers to operate seamlessly throughout the region. This regulatory harmonisation, coupled with improved access to EU payment systems, can allow non-bank institutions to offer more innovative services alongside traditional banks. Merchants stand to benefit from a wider range of payment solutions and more innovative, cost-efficient services tailored to their business needs.
More innovative financial solutions
PSD3 and PSR could promote innovation by establishing updated standards for data sharing in the financial sector. These regulations could provide PSPs and other authorised third-party providers with access to more customer financial data, which could lead to the development of new and more innovative payment solutions and financial products for merchants.
Get ready for PSD3 with emerchantpay
The ever-evolving payments sector is on the brink of another significant change with the upcoming implementation of PSD3 and PSR. It presents both challenges and opportunities. By staying informed and partnering with an experienced PSP like emerchantpay, merchants can not only proactively comply with these new regulations but also leverage them to enhance their payment offerings and customer.
With over 20 years of expertise in navigating complex payment regulations, we are an ideal partner for merchants looking to thrive in this next era of payment services and regulation. With our support, you can turn regulatory challenges into opportunities for growth and innovation.
Our PCI Level 1-compliant payment solution is easily accessible through simple integration, offering an array of powerful features. These include in-house and global acquiring, alternative payment methods, robust fraud and risk management. We empower merchants worldwide to craft a seamless and captivating payment experience for their consumers globally.
Contact our payment experts today and embrace the future of payments with emerchantpay.