If, like Marqeta, you believe that the future of payments is about to be shaped by embedded finance in the coming months and years, there’s a good chance that you’ll be encouraged by some of the measures proposed in revisions to the European Union’s Payment Services Directive.
PSD3 builds on PSD2 which, effective from 2018, heralded the era of regulation-driven open banking in Europe, in addition to enhancing consumer protection as well as supporting innovation and competition.
Yet while there is still some way to go in terms of fully realising the benefits of open banking across the wider economy, it’s clear that PSD3 has the potential to accelerate adoption, thanks to six new measures.
What PSD3 might mean for financial services innovation
Of the new measures proposed, it’s arguable that steps to ‘improve the functioning of open banking’ will be most welcome by the innovator community. The European Commission (EC) has stated that the remaining obstacles need to be removed in order to improve customers’ control over their payment data and enable new services to enter the market.
This is likely to include requiring banks and other payment account providers to set up a “dashboard allowing consumers of open banking services to see at a glance what data access rights they have granted and to whom, and to withdraw access via this tool”.
Alongside this, the EC wants to improve consumer rights, particularly in instances where a person’s funds are temporarily blocked, as well as providing more transparent information on ATM charges. This is welcome from an inclusivity perspective, as many of society’s most disadvantaged people continue to rely on cash.
It will also be interesting to see how the supporting measure to “improve the availability of cash in shops and via ATMs” by allowing retailers to provide cash services without requiring people to make a purchase will be adopted.
But perhaps the measure most likely to be welcomed is the attempt to further level the playing field between banks and non-banks. In fact, it’s vital as we move to an embedded world that both financial and non-financial businesses are given access to the EU’s different payments systems.
Robust new rules on data holding and sharing
Part of PSD3’s efforts to strengthen consumer rights centre around the use of data by banks and fintechs. Accompanying the six measures, is a set of legislative proposals which include ensuring consumers are not obliged to share their data with financial institutions.
Banks and fintechs will also be required to make data available, with customer permission, to other financial businesses by putting in place relevant tech infrastructure. Furthermore, customer data and interfaces will also have to be standardised to align with financial data sharing schemes, of which financial institutions and fintechs will be required to become members.
This new data framework will be underpinned by clear liability regimes for breaches and dispute resolution mechanisms, which will be designed in a way that removes disincentives for financial institutions to make data available.
New measures to protect consumers
In addition to accelerating innovation in financial services, PSD3 has a heavy focus on boosting security and tackling fraud. This is something of a balancing act for all financial innovators - applying the right amount of friction to frictionless transactions is a perennial challenge but which must be overcome.
PSD3’s measure to combat and mitigate payment fraud will enable payment service providers to share fraud-related information, increase consumer awareness of best practices and strengthen authentication rules. The measure will also extend the refund rights of consumers who fall victim to fraud, while making it mandatory to check the alignment of payee IBAN numbers with account names in all credit transfers.
The final of the six measures aims to strengthen harmonisation and enforcement by “enacting most payment rules in a directly applicable regulation and reinforcing provisions on implementation and penalties”. Hopefully, this will bring benefits to end users in terms of transfers and make it simpler for innovators to expand into new markets around Europe.
In the post-Brexit UK, work is already underway to develop standardisation with industry body Tech UK working “closely with Parliament, Government and regulators on the smart data initiatives, including the next steps for open banking”. The group says that it is “essential that the United Kingdom develops its own framework” and builds on the success of open banking.
From Marqeta’s perspective, we’ve built the tech to enable many of the consumer friendly innovation outcomes set out in PSD3. It looks like certain aspects of the new regulations will complement that endeavour, accelerating the transformation of financial services in a positive way.
