The Payment Services Directive, or PSD, forms one of the important elements of financial regulation within the European Union and has been highly instrumental in shaping the ways different kinds of payments are carried out across the region.
With the digital payment landscape evolving day by day, PSD2 brought in changes that made the bottom of the financial services market shake, making it all about competition, security, and transparency.
So, as technological and payment practices change, PSD3 is next in line, regulating EU payments in a much-needed update towards the strengthening of the security, convenience, and efficiency of payment services throughout Europe.
Let’s dive into PSD3 in this article: its objects, expected changes from PSD2, and everything that businesses and consumers should know.
Background: The Development of Payment Services Directives
To understand PSD3, one has to go back to its predecessors, particularly PSD2. PSD2 was implemented in 2015, a significant change in the regulation of payments by:
Opening up the payment services market to new entrants, such as TPPs, paved the way for open banking.
Improving consumer protection by requiring stronger security measures, including SCA.
Enhanced transparency in the areas of fees about the payments themselves.
Competition and innovation in the area of payments have led to new and more efficient ways to make payments.
But success notwithstanding, PSD2 quickly highlighted the inevitability of updating the regulatory framework.
Emerging challenges reshaped the payment services landscape, necessitating measures to make the market more secure, competitive, and aligned with the rapidly evolving digital world.
This shift was further driven by the explosive growth of digital wallets, cryptocurrencies, and the increasing demand for cross-border payments.
What is PSD3?
PSD3 is a draft version of the old PSD and attempts to fill in what has been lacking through PSD2 with new measures set forth based on payments’ high-tech development scenario.
The actual final draft wasn’t fully drafted yet at early 2025.
The concept represents some changes taking place towards considerable regulation about how Europe provides and deals with its payments.
Objectives of PSD3
The following are the objectives of the PSD3:
Improving Security: Building upon PSD2, PSD3 aspires to aim for a version of the service that is even safer to deliver: payment services being as safe for the consumer.
Assuring Consumer Safety: The protection of consumers of the future for the EU shall be much better, thus bringing more comprehensive rights with transactions.
Promoting Competition and Innovation: PSD3 is designed to further enhance competition and innovation by focusing on the issues TPPs face, including access to the customer’s data and increasing clarity for TPPs concerning regulation.
Emerging Payment Trends: PSD3 seeks to bring payment rules in line with modern payment trends, such as digital wallets, cryptocurrency, and real-time payments.
Strengthening Supervision and Overseeing: Enhanced the role of regulators and supervisors in overseeing the payment services, ensuring adherence to new security and transparency standards.
Key Changes and Features of PSD3
PSD3 would develop PSD2 with further additional measures and fine-tuning of rules in place. Among the proposed changes and features are as follows:
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Expanded scope of regulation
PSD3 will probably encompass a broader scope of payment services than the previous. For example, it may cover more classes of digital assets like cryptocurrencies than the previous one.
The regulation would make sure that both traditional and emerging forms of digital payment fall under the same rules.
This would also extend to cover nonbank payment service providers and new entrants in the fintech area that have come up exponentially since PSD2.
Read about: Online Banking Security: A Comprehensive Overview”
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Higher Transparency and Consumer Protection
PSD3 will add new obligations regarding transparency, specifically relating to charges that are hidden.
This means that companies need to provide more explicit and clear information on what the payment service costs consumers, thereby giving the latter the right to better choices.
Consumer protection will extend to encompass an even larger list of payment events.
For example, a better mechanism will now be given under the new directive to consumers concerning cases of fraud and errors in the transaction as well as other related cross-border issues.
Read about: Major Types of Payment Fraud and How to Avoid Them?
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Improved Security Feature
While PSD2 introduced SCA to prevent fraud, PSD3 is expected to further tighten security in response to emerging threats and new payment technologies.
Enhanced anti-money laundering protocols and more sophisticated transaction monitoring systems are likely to form the core of PSD3.
This would also include introducing new measures on potential vulnerabilities within the open banking ecosystem and tougher regulations on the sharing of data among banks, third-party providers, and consumers.
4. Open Banking and Access to Payment Accounts
PSD2’s open banking rules enabled third-party providers, the TPPs to access customers’ data through APIs to drive innovation within financial services.
PSD3 is meant to further rationalize these agreements between banks and TPPs that work in more effective harmony to enrich the payment experience.
PSD3 might also include regulations regarding data ownership and access, making sure customers retain full control over their data, while also providing clearer guidance for banks on how to share data securely with authorized third parties.
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Cross-Border Payments and Innovation
The challenge of cross-border payments has been long-standing for the United States and Europe, mainly due to the regulations and fees that vary from one jurisdiction to another.
PSD3 will possibly enhance cross-border efficiency by going further into new frameworks for real-time payments and integration with international payment systems.
The European Commission has emphasized the need to make cross-border payments within the EU as fast and cheap as domestic payments.
PSD3 could introduce new measures that help reduce costs and increase speed, benefiting both consumers and businesses engaged in cross-border trade.
6. Stronger Regulatory Oversight
The PSD3 is expected to bring a new level of regulation and oversight to the payment service providers.
There will be an increase in power for the European Central Bank and the European Banking Authority so that the regulations are implemented accordingly.
Licensing and reporting for payment institutions are going to be more stringent.
To guarantee that payment service providers adhere to the enhanced security and consumer protection criteria, authorities may also be granted further authority to enforce penalties for noncompliance with PSD3 regulations.
Impact of PSD3 on Businesses
The PSD3 will bring about several opportunities and challenges for businesses in the payment services industry. Some of the impacts include:
Increased Compliance Costs
PSPs will have to adjust to new regulatory requirements, including additional security features, transparent pricing models, and cross-border payment rules.
This will probably drive up the cost of compliance-especially for smaller PSPs or fintech startups.
Opportunities for Innovation
PSD3 focuses on the doors it can open to businesses by promoting competition and innovation.
Stronger open banking regulations, for instance, could allow fintech companies to offer new services that help consumers manage their finances better.
Consumer Trust
Businesses will need to invest in security infrastructure and enhance consumer protection mechanisms.
By doing this, companies may gain the trust of customers, which is crucial for sustained success in the very competitive payments industry.
The Impact of PSD3 on Consumers
Consumers are expected to benefit significantly from PSD3, particularly in the following ways:
Better Consumer Protection
The expanded consumer protection provisions by PSD3 will ensure greater protection of consumers from fraud, payment errors, and hidden fees.
More transparency in terms of pricing will enable the consumer to make more informed choices when selecting a payment provider.
Improved Security
Increased focus on security will diminish the occurrence of frauds and data breaches, which in turn will mean safety in more ways than one for online and mobile payments.
This way, consumers will have confidence in using digital payment solutions.
Improved Cross-Border Payments
Cross-border transactions by consumers will lead to reduced prices and faster processing times, making international payment easy and affordable.
Conclusion
The next advancement in European regulation of payment services is PSD3.
Although it provides new measures to meet the problems provided by growing technology, new market entrants, and increasing consumer expectations, it builds on the accomplishments of PSD2.
PSD3 will contribute to the development of a safer and more effective payment environment for both consumers and companies by enhancing security, boosting transparency, and encouraging innovation.
Stakeholders in the payment services sector, such as financial institutions, third-party providers, and regulators, need to keep themselves updated and get ready for the upcoming regulatory changes as the final text of PSD3 continues to take shape.
While consumers may anticipate a more secure and user-friendly payment environment soon, businesses should prepare for the requirement for compliance and strategic technology investment.
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