The EU has recently unveiled a revised Payment Services Directive proposal, known as PSD3, with the aim of taking open banking to the next level in the EU and the UK.
This move follows PSD2 which was introduced in 2018 and transformed banking and financial services across Europe by passing open banking into law.
Since then, third-party data shared by banks has expanded the types of financial services on offer, heralding the dawn of embedded finance and the creation of banking ecosystems.
PSD3 is set to take open banking regulations further, setting out six aims for the future. These include greater combatting and mitigation of payment fraud, enhancing the rights of consumers, providing equal access to payment systems for banking and non-banking bodies, spreading open banking further, improving cash availability at ATMs, and greater enforcement of the latest laws.
The EU hopes its new broad-ranging suite of regulatory updates will increase baseline adoption of open banking services and the performance of open banking APIs.
Industry Encouragement for PSD3
Despite the ambitious goals laid out in PSD3, industry leaders have expressed support for the proposition.
Jan van Vonno, Head of Industry & Wallets at Tink, is encouraged by many aspects of the new proposals. He highlights the benefits of giving authorities the tools to better evaluate the dedicated interfaces (APIs) provided by banks and other financial institutions.
The timing of proposed Regulatory Technical Standards (RTS) updates is also crucial. Given new legal refurbishments to Financial Data Access (FIDA), as well as Payment Services Regulation (PSR) regulations, these updates have helped boost the number of open banking services available in European markets.
Todd Clyde, CEO of Token.io, shares Vonno’s enthusiasm for the aims of PSD3 to scale reliable, trustworthy APIs. He believes that API-based interfaces provide the most secure and performant way for Third Party Providers (TPPs) like Token.io to interface with banks, and ultimately support the delivery of innovative services and better outcomes for end users.
A New Era of Open Banking?
The introduction of PSD3 marks a new era in open banking. It has the potential to significantly enhance the performance of open banking APIs and increase the adoption of open banking services.
However, the success of PSD3 will largely depend on the industry’s ability to meet the ambitious goals set out in the directive, as well as the effectiveness of the regulatory updates in addressing the current challenges faced by the industry.
The proposed changes are currently undergoing reviews and amendments in the European Parliament and the Council of the EU. The finalised version is expected to be published by late 2024 or early 2025. After publication, member states have an 18 month transition period, during which states will transpose the directive into national law and prepare compliance for newly introduced regulation.
Based on these timelines, PSD3 and PSR1 are expected to come into effect in 2026. This timeline provides financial institutions with a clear roadmap for preparing for the changes and ensuring they are in compliance with the new regulations.