Unravelling the Quirkiness of PSD3

EU· 5min July 11, 2023

A payment adventure like no other and its impact on the financial landscape.


In the realm of trilogies, and following blockbusters like the Lord of the Rings, Star Wars and the Godfather, a new addition to the pantheon emerges - PSD3 - which tells a captivating coming-of-age story of payment regulations and all that it brings.

The financial world may not be known for its humour, but brace yourselves for the wild ride that is the Payment Services Directive 3 (PSD3). Forget dull regulations and stuffy financial jargon; there’s a new sheriff in town and it’s here to shake things up. Primarily driven by technological advancements and evolving consumer demands, PSD3 is the latest iteration of the EU's regulatory framework for payment services, looking to modernise the payment landscape, enhance consumer protection and foster innovation through a few key pillars.

01. Security, or ‘the fortress of authentication’

With buzz-words like two-factor authentication and biometric scanners, PSD3 takes security seriously, and by introducing stricter authentication requirements, the aim is to fend off relentless attacks of fraudsters and unauthorised payment attempts. By doing so, the regulator is attempting a fine balancing act of protecting consumers whilst also trying to ensure that we all won’t have to become tech-wizzes to avoid regularly being locked out of our bank accounts. For more info on the fraud topic and the expected IBAN/Name check function, come speak to us at Form3 or read the excellent written piece by my colleague, Chris Oakly.

02. The Great Expansion

Move over, traditional payment methods - PSD3 aims to bring the unconventional into the fold. By continuing prior regulations general theme of innovation, PSD3 extends its regulatory arms to encompass the wild and wonderful world of digital finance. By incorporating a range of ‘fresh’ technologies, from virtual currencies to crypto-assets and e-wallets - the aim of course is to ensure that they adhere to the same regulatory standards as traditional payment instruments. However, let’s face it - it’s near impossible even for professionals to keep up with the ever-evolving payment landscape – so bringing more clarity and oversight to previously unregulated sectors might not be enough!

03. Open Banking Bonanza

Continuing the theme of innovation and levelling the playing field whilst looking jealously at the UK’s success in this area – it wasn’t a surprise to anyone that Open Banking became a hot topic for the EU. With a vision of financial institutions as friendly neighbours, sharing milk and cookies through an open window, the spirit of open banking is promoted throughout PSD3. Banks open their doors (and APIs) to third-party providers, creating a marketplace where innovative payment services flourish in harmony.

04. Enhanced Consumer Rights and Redress Mechanisms

PSD3 aims to empower consumers and ensure they have a voice in the payment realm by introducing enhanced consumer rights and redress mechanisms, like a magic wand that grants you the ability to dispute transactions with a flick of your wrist. Transparency is the name of the game!

But how will this impact financial institutions across the region?

Tech, tech, tech! Some of the worlds largest bank executives has already declared that their giants of institutions isn’t banks at all, but mere technology companies with a banking license. This tune has never rung truer, as PSD3 is set to transform the financial sector into a technological bonanza.

Brace yourself for the spectacle as payment providers strive to keep up with the new security requirements whilst traditional banks tries to navigate and counter the ever-changing landscape of digital innovations. How this will manifest itself will require different strategies depending on the size and complexity of an institution – but will require some very deep pockets or the reliance on outside help – although most likely both!Competition! With the introduction of open banking and the added abilities for Payment Institutions/Electronic Money Institutions (PI/EMI) to access the clearing (Form3 has a solution for this as well) -  the payment industry becomes a bustling hotpot of solutions and/or opportunities.

Traditional financial institutions and fintech companies will more viciously have to jostle for space to try and outperform each other - where ultimately the challenge lies in striking a balance between security, innovation and user experience!Consumer impact! While PSD3 aims to protect consumers through fee disclosures and consumer rights - it also requires us to actively engage in secure payment practices. Educating consumers about the new security measures and potential risks is key to not get the wider opinion to turn on the industry. I’m not sure about you but I know a fair few grandparents and other tech-orthodoxies who isn’t going to enjoy the additional responsibilities!

Written by

Erik Alstromer Head of Europe and New Markets

Erik is Form3's Head of Product for Europe, whilst also managing the global roadmap strategy for further expansion outside the UK/US/EMEA.
Previously, he led Form3's build-out of the US market, with rapid expansion of services and particular focus on RTP, FedNow, ACH (TCH and Fed) and Wires (CHIPS/FedWire)Erik holds a Master degree in Finance and is shortly due to complete his Execute MBA.