European Union: PSD3 And PSR - A Digital Transformation Of The Payments Industry

These new proposals promise to better the functioning of the EU payment market by widening the financial sector, strengthening measures which combat payment fraud, and improve consumer experience with financial products and services.

The PSD3 and PSR Proposals

This two-part measure which will repeal PSD2, is introducing PSD3 and PSR which will increase harmonisation and enforcement throughout the EU. Their main objectives are to:

1. Strengthen user protection and confidence in payments by establishing new anti-fraud measures regarding both fraud prevention and redress to better tackle new types of fraud. These measures include:
   • setting up a new IBAN/name matching verification service which will signal to a payer any discrepancies between the name and unique identifier of a payee for instant payments in Euro;
   • strengthening transaction monitoring by introducing a legal basis for PSPs to share fraud-related information among themselves;
   • creating an obligation on PSPs to educate customers and staff about fraud;
   • enabling refund rights to victims of fraud where a consumer has suffered damages caused by the failure of the IBAN/name matching verification system and when a consumer falls victim of spoofing;
   • improving user rights and information requirements; and
   • improving the application of Strong Customer Authentication ("SCA").
2. Improve the competitiveness of open banking services by removing obstacles to the provision of open banking services, allowing new innovative services to enter the market and improving customers' control over their data by requiring account servicing PSPs ("ASPSPs") to put in place a dedicated data access interface and offer consumers a "permission dashboard" which allows them to withdraw data access from any open banking provider.
3. Improve (direct and indirect) access to payment systems and bank accounts for non-bank PSPs by strengthening payment institutions' ("PIs") and e-money institutions' ("EMIs") rights to open a bank account and imposing on banks requirements to explain refusal to open bank accounts, as well as granting PIs and EMIs the possibility of having direct participation in all payment systems. This will in turn harvest competition and create a level playing field between bank and non-bank PSPs which will be in a better position to provide payment services and keep up with bank PSPs.
4. Improve enforcement and implementation in Member States with the introduction of the PSR, as well as with the proposed integration of the Electronic Money Directive with PSD3 and PSR, merging the EMI regime with that of PIs. The PSR will provide uniform requirements on the provision of payment services and electronic money services, particularly by setting out rules on transparency of conditions and information requirements and establishing the rights and obligations of payment and electronic money service users.

Should the proposal become law, PSD3 will provide rules on the authorisation of those undertakings intending to provide payment or electronic money services. Those PIs and EMIs who would have been authorised under PSD2 or the E-Money Directive will be allowed to continue providing payment services for a period of 24 months from the entry into force of PSD3. However, such PSPs will be required to submit all the necessary information to the competent national authorities which will enable them to assess compliance with the new rules.

While these new changes will require PSPs to overcome the challenge of implementing a significant number of new technical mechanisms such as the enhanced SCA requirements and the inclusion of the new "permission dashboard" for ASPSPs, these new changes clearly strive to provide enhanced rights and security to consumers which will inevitably lead to greater trust in PSPs, which will contribute to the continued growth of the PSP market.

The Commission's highly awaited proposal package seems to address the most pertinent issues currently being faced with the implementation of the PSD2, by shifting its focus onto the consumer's needs and requiring PSPs to embrace innovation and digital progress. The European Council and European Parliament will now soon be holding discussions on the Commission's proposal package. Once the final proposal is published, the Member States will have 18 months within which to transpose the Directive into national law.

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