This is an excerpt from the Future of Payments 2025 report.
There are a plethora of new EU regulations and directives on the horizon. Many of these will require banks and financial institutions to start making (or really have already started to make) big changes.
Many will be aware of the impact PSD3 many have, and despite the timeline for this not yet being in place, there are still ways to prepare for it and surrounding legislation like the Payments Services Regulation (PSR) and the Instant Payment Regulation (IPR).
For those looking at these upcoming alterations, it may seem daunting. Yet, on the whole many of these innovations will work to encourage innovation, create greater efficiency and improve outcomes for consumers.
Aim of EU payments regulation
“EU regulation typically addresses three topics: (1) level-playing field, (2) consumer protection and (3) market integration,” commented Daniel Hellmann, director, risk advisory, payments, Deloitte.
There can sometimes seem to be a never-ending wave of new payments regulations, but as Hellmann noted, these often come with good aims behind them.
Regarding a level playing field, Hellmann argued that this will “allow on the one hand innovation from new market entrants (for example via granting access to accounts and payment systems) and on the other hand clear rules for interaction between the different
players in the ecosystem.”
Hellmann stated that for consumer protection, upcoming legislation has had the addition of verification of payee and exchanges of fraud data.
Finally, Hellmann commented that the aim of market integration “can reduce complexity, allow easier expansion in new markets and same oversight.”
PSD3, PSR and the move towards open finance
PSD3 and the associated PSR are long awaited regulations which promise to alter the European payments landscape. As of yet, PSD3 and PSR are still under review, and the timelines are not yet known with more updates anticipated by 2025. In light of this,
it is important to look at what is expected of these regulations and their proposed benefits.
“Regulations like PSD3 and PSR aim to level the playing field and drive innovation rather than be seen as the classic competition for the same resources that financial institutions are trying to use to make innovation changes,” said Kevin Flood, director,
FIS payments ecosystem strategy, corporate and international banking, FIS Global.
PSD3 builds on its predecessor PSD2, driving open banking forward. Flood argued that it will also “foster and drive innovation”. He gave examples like enhancing the Open Banking Framework and pushing open finance forward which will “enable the sharing of
more financial data and offering of more services.”
Flood elaborated: “PSD3 may lower the barriers for new entrants, by lowering regulatory and compliance barriers new fintech startups may find entrance to the market easier promoting more innovation, collaboration and competitive collaborative.”
Samarth Bansal, general manager, Asia Pacific, Wise Platform stated the PSR and PSD3 will “introduce stricter transparency requirements and enhanced safety measures.”
From Bansal’s perspective, these are welcome due to the costs of hidden fees. He stated: “These hidden costs, often unknown to consumers due to a lack of transparency in fee structures, highlight the need for change.”
Bansal continued: “The upcoming regulations will offer PSPs an opportunity to address these challenges and build trust and greater relationships with customers by delivering on the transparency that consumers increasingly demand.”
Additionally, Flood stated there is “PSD3 could foray into digital currencies like crypto, stablecoins, CBDCs which will help with frictionless cross border transactions and digital assets payments. We could even see QR code payments making an entrance into
the EU market.”
Instant payments and tacking fraud concerns
The IPR, or SEPA instant, is “shaking up the industry” according to Amelia Ruiz Heras, Head of Global Solutions Consulting, Payments at Finastra.
Flood argued that PSD3 regulation will work in conjunction with IPR and “should go some way to encourage development of faster and more efficient payment systems.”
Ruiz Heras noted this mean PSPs across the EU will have to offer “transactions in euros, any time of day and year, and at a cost that is no more than the fee charged for sending or receiving non-instant euro credit transfers.”
For proponents of instant payments, this is what they have been aiming for, but it is not without hurdles. One of the major stumbling blocks of instant payments which continues to arise is fraud and criminal activity, as Hellmann stated: “Instant payments
require additional safeguards on scalability, availability and security.”
Ruiz Heras noted that there are a number of anti-fraud requirements built into the IPR: “Banks and PSPs will need to have robust anti-fraud measures in place, including carrying out sanctions screening procedures at least once a day and providing a Verification
of Payee (VoP) service to verify the match between the international bank account number (IBAN) and the name of the beneficiary, to alert the payer of a possible mistake or fraud before the payment is made.”
It is Hellmann’s view that these measures around sanctions screening and VoP “will reduce fraud and this hopefully leads to more customer satisfaction and lower exposure to enforcement action and lower amount of alternative dispute resolutions.”
The IPR’s requirements are almost mandatory for banks and the tight timeline of the IPR adds further pressures for financial institutions meeting the requirements of this legislation. Ruiz Heras commented: “With aggressive timelines and challenges associated
with legacy infrastructure in many banks, compliance can be a big undertaking.”
However, Ruiz Heras did provide some solutions to these issues: “By adopting a cloud-based, API-enabled Payments as a Service (PaaS) solution that provides instant access to new clearings and payment methods, real-time fraud prevention, and VoP, institutions
can both fast-track compliance with the regulation and go beyond compliance to provide additional value to their customers.”
Apart from the benefit of giving customers instant payments directly, Ruiz Heras argued there are opportunities for further benefits: “Banks will have the opportunity to differentiate their offerings by developing new services and revenue streams. Through
cloud, PaaS and open APIs, they can quickly bring this new functionality to market as regulations and innovations evolve, such as utilizing AI to enhance payments processes and strengthen security.”
Next EU regulations to watch
In addition to the move from open banking to open finance through PSD3, Hellmann highlighted Framework for financial data access (FIDA) as the next regulation to watch.
He said: “FIDA includes new data sets to be shared to Financial Information Service Providers, if consented by the customer. This will include new financial institutions, for example insurers or asset managers, and allow new digital financial services.”
Yet Hellmann the benefits FIDA could bring as it “allows traditional bank to develop better advisory services for their customers and stay or become even more relevant.”
The Digital Euro’s development is another area to watch. The European Central Bank published a progress report midway through 2024, showing their progress and a timeline showing the finalising of the Digital Euro rulebook is projected for October 2025, with
a next phase potentially being launches after that.
How to prepare for upcoming EU payments regulations
Looking at preparing for all of these regulations, there are some steps which can be taken.
Hellmann advised to check similar requirements of different legislation and timelines. He states that IPR and PSR are different but require similar measures, like VoP. He stated: “PSPs should have already started to prepare, or should start now. It is of
importance to review and compare the requirements of the different regulations to ensure proper application at the correct date. This avoids double work due to slightly different scope.”
Regarding preparing for FIDA, Hellmann said that although financial institutions will be familiar with open banking, other financial institutions should start familiarising themselves with the opportunities and requirements.
Hellmann concluded: “Typically, regulation is an answer to observed and unregulated innovation, which most often has its source in technology or in customer demand. Regulators should work hand in hand with innovators, engage in dialogue and provide guidance
to foster innovation by at the same time ensuring level-playing field, consumer protection and market integration.”