By Henrik Bilgrav | January 11th 2024
What Does the PSD3 Directive Mean for Financial Institutions and Consumers?
The financial world is constantly evolving, and as we move into a new era of digitalization, we face significant changes.
One of the latest and most significant changes that will impact both financial institutions and consumers is the introduction of PSD3 – the third Payment Services Directive within the EU. PSD3, or Payment Services Directive 3, is not just an update of the rules from PSD2 for payment services; it represents a groundbreaking transformation and competition within the payment landscape and financial institutions.
In this article, we will explore some key elements of PSD3 and explain why it is crucial for financial institutions to address PSD3 already.
Increased Competition and Enhanced Innovation in the Financial Sector with PSD3’s Open Banking Changes
The update of the Payment Services Directive by PSD3 marks a crucial shift in the financial sector’s landscape by intensifying competition through significant changes in Open Banking regulation. These changes aim to promote increased innovation and strengthen consumer choices.
Overall, data sharing is expanded to include almost all types of financial institutions, including insurance and pension companies, mortgage institutions, AIF and UCITS managers, fund brokers, and other parts of the investment service sector.
This allows for more comprehensive and diversified data sharing, including loans, accounts, insurance products, investment products, pension schemes, crypto assets, real estate, etc.
At the same time, access is granted to Financial Information Service Providers (FISP). FISPs are new service providers who, upon approval, can access customer data in line with the existing FIDA rules for current financial institutions.
This opens the door to a completely new business model where the consumer, through an FISP provider, can gain an overview of the price and content of the simple financial product and thus assemble a portfolio of financial services across current and new financial institutions.
Consumer Benefits and Protection Through PSD3
PSD3 not only boosts competition but also brings benefits and improvements for consumers in various areas.
Overall, PSD3 enables information collaboration between payment service providers, where consumers benefit from fraudsters being identified more quickly through the sharing of fraud information between payment service providers. The fraud of individual scammers is thus closed more quickly.
At the same time, consumer awareness of the risk of fraud increases, and stronger rules for customer authentication are established, increasing consumer confidence in the payment transaction. And if things go wrong, the consumer’s repayment rights are extended, which, however, will also have a financial impact on the underlying financial institution.
Similarly, consumers are better positioned with temporary blocking of funds, giving them more control over their finances and ensuring an immediate response in case of suspected fraud. At the same time, the consumer gains additional transparent information about fees, exchange rates, etc., compared to the current PSD2 directive.
Finally, the consumer obtains a decision-making right regarding who can access the consumer and the consumer’s financial data. This is achieved by allowing the consumer to access a dashboard where the consumer can grant or revoke the right to access the consumer’s financial data.
PSD3 Schedule and Preparation
The European Commission has not yet established a clear schedule for the implementation of PSD3. The PSD3 proposal was presented by the European Commission on June 28th, 2023. Although the final versions may be available by the end of 2024, no precise dates have been set.
Normally, member states will have a transition period of 18 months after adoption. This suggests that PSD3 and PSR will likely come into force around 2026.
Despite the schedule for PSD3 not being finally determined, the impacts on the financial sector are so significant that it signals a new era for the financial sector, where increased competition and innovation drive the development of new financial services.
Therefore, financial institutions should already now be aware of these changes and, strategically position themselves to take advantage of the new opportunities and address the new threats that arise through PSD3 in the market.
Throughout the article, we have attempted to provide you with a comprehensible overview of PSD3. If you want more in-depth information about the effects of PSD3 and what is currently specifically determined about PSD3, feel free to contact us for an informal dialogue.
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