A Comprehensive Guide to the EU’s Latest PSD3, PSR & FIDA Proposals

On June 28, 2023, the European Commission released a series of new legislative proposals for some of the most fundamental regulations related to payments and financial services, including the revised Payment Services Directive (PSD3), the Payment Services Regulation (PSR), and the Financial Data Access (FIDA) framework.

These proposals are designed to promote the digital transformation of the industry while prioritizing consumer needs. In this overview, we will guide you through the highlights of these potential updates and explain how such measures could influence the European payments landscape.

PSD3, PSR, and FIDA in a Nutshell

Since the EU Commission’s new proposals refer to three different regulatory pieces, it is crucial to understand the difference between PSD3, PSR, and FIDA before delving into the contents of the potential changes. Here’s what these regulations are all about in simple terms:

• PSD3 is an upcoming legislative framework that will govern electronic payments and the banking ecosystem in Europe and is expected to go into full effect approximately in 2026. It is the successor to PSD2, which has been in effect in the EU and the EEA since 2019.
• PSR sets out rules and requirements for payment services within the EU and aims to create a harmonized legal framework for all relevant stakeholders.
• FIDA is a regulatory framework and an essential part of the open banking initiative that tackles access to financial data within the European Union. Its goal is to enable secure and controlled access to financial information held by banks and other FIs for authorized TPPs.

All of these regulations work together to address specific aspects of the European payment ecosystem and financial data access, ensuring their effective implementation and compliance.

Why Are These Payment Service Rules Being Revised?

The European Commission conducted a thorough evaluation of the currently effective version of the Payment Services Directive in 2022. This process involved input from the European Banking Authority (EBA), public consultations with both general and targeted stakeholders, as well as an independent consultant’s report, and focused on such aspects as:

• Charges
• Scope
• Thresholds
• Access to payment systems

This review has revealed mixed results in terms of PSD2 meeting its objectives.

On the positive side, the introduction of Strong Customer Authentication (SCA) under PSD2 has significantly contributed to fraud prevention, yielding positive results in reducing fraudulent activities.

Besides, PSD2 has proven effective in enhancing the efficiency, transparency, and selection of payment options available to consumers, thanks to the emergence of new payment instruments since its implementation.

However, the evaluation also highlighted certain challenges, including:

• An uneven playing field for PSPs
• Limited access to critical payment finalization systems for non-bank PSPs
• Open banking adoption inconsistencies, with obstacles from account information and payment initiation service providers remaining
• National-level dominance of debit card systems hampering the expansion of cross-border payment services

Thus, based on the evaluation’s findings, the Commission determined that amendments are essential for advancing PSD2’s objectives and promoting a more integrated and competitive European payments landscape.

Similarly, the PSR and FIDA require amendments to ensure that they remain relevant and up-to-date in addressing the evolving needs and challenges of Europe’s rapidly evolving financial sector.

Which Changes Are Suggested for PSD2 & PSR?

By putting the new legislative proposals forward, the European Commission is fulfilling an important commitment to address existing issues in the local retail payments sector and face up to its emerging challenges, which was outlined in the 2020 Retail Payments Strategy.

The main changes to the existing PSD2 and PSR regulations suggested by the proposals include:

• Consolidating e-money institutions and payment institutions into a single entity category, which can offer both payment and e-money services. Existing authorizations granted to PIs and EMIs will remain valid for an additional 24 months, with new applications expected to be submitted to national competent authorities within 18 months of PSD3’s entry into force.
• Introducing new measures to combat fraud by allowing PSPs to exchange fraud-related information, strengthening customer authentication rules, granting extended refund rights to fraud victims, and implementing a mandatory system for verifying the alignment of payees’ IBANs with their account names in credit transfers.
• Enhancing consumer rights by means of improving transparency on account statements, providing clearer information on ATM charges, and promptly addressing situations where funds are temporarily blocked.
• Boosting open banking initiatives by granting non-bank PSPs access to all EU payment systems with appropriate safeguards, securing their rights to a bank account, and eliminating certain obstacles to data access.
• Allowing retailers to offer cash services without requiring a purchase, provided that the operation cap is €50 per withdrawal and any possible fees charged are disclosed.
• Narrowing down the commercial agent exemption to make it more challenging for entities like marketplaces to avoid the licensing requirement under PSD3.

Additionally, the EU Commission aims to enhance the enforcement and harmonization of the updated payment regulations across member states by implementing the majority of rules through the Payment Services Regulation (PSR).

How Can FIDA Be Updated According to the Commission’s Proposal?

The proposal for the Financial Data Access framework aims to determine clear rights and responsibilities for managing customer data-sharing beyond payment accounts. The key measures suggested by the proposal include:

• Offering consumers the option to securely share their data with such entities as FIs or fintechs using secure machine-readable formats. This would allow customers to access a wide range of innovative and advanced financial products and services.
• Requiring FIs to share customer data with data users. For this data-sharing process, financial institutions will need to establish the necessary technological infrastructure and gain client permissions.
• Providing customers with complete control over their data, allowing them to decide who can access their data and for what purpose it can be done.
• Standardizing customer data and technical interfaces for the sake of enhancing financial data-sharing schemes.
• Establishing straightforward and transparent frameworks clarifying liability in case of data breaches and developing mechanisms that enable swift dispute resolution.
• Encouraging data holders to develop top-notch interfaces for data users by offering reasonable compensation from the latter, based on the general B2B data-sharing principles listed in the Data Act proposal. Notably, smaller firms will only pay compensation at cost so that the conditions remain fair for all stakeholders involved.

All in all, the Commission’s suggestions regarding FIDA, alongside the PSD3 and PSR proposals described earlier, have the potential to truly transform the European payment landscape, should they be implemented.

What Happens to These Regulations Next?

The release of the PSD3, PSR, and FIDA proposals marks the first phase of their journey toward being implemented.

Now, they will have to undergo a rigorous review process by both the European Parliament and European Council. Once it’s complete, the final versions of the documents will be published. Although the timelines haven’t been announced yet, this could be expected to happen somewhere around Q3-Q4 2024.

As for the implementation deadline, member states are typically granted a 24-month implementation period, which would mean that PSD3 and the PSR could come into full effect in 2026.

With this in mind, it is essential that PSPs carefully review the contents of the proposals and adjust their operations accordingly to make sure they are ready for the upcoming changes well in advance.