Europe’s commitment to moving toward efficient payments will once again demonstrate its strength. The European Commission is accelerating the implementation of an ambitious program announced last June, timed to fit a tight electoral schedule (if possible, before the 2024 European elections). It includes PSD3 and the PSR (Payment Services Regulation). Technical access to payment infrastructures has been clarified. Instant transfers will, unsurprisingly, be mandatory in Europe and free of charge almost everywhere (all laid out in a text of only about ten pages), with adoption expected by the end of the year.
The challenge will be to anchor the announced revolution in everyday life and achieve the expected volumes. So far, the reforms have not met all the ambitions, which are certainly high and therefore require time to adapt.
From chaotic start to unprecedented consensus
The First Payment Services Directive (PSD1), adopted in 2007, ended the banking monopoly by granting recognized status to payment institutions, with the aim of boosting competition and innovation in Europe. PSD2, in 2015, drove the point home by requiring banks to expose their data via APIs to new regulated players capable of accessing banking data (AIS) and orchestrating account-to-account payments (PIS), thereby paving the way for open banking. Over the past eight years, the road has been long, winding, and not always paved with good intentions… but it must be acknowledged that the current situation is quite different. Europe is preparing to vote on no fewer than 10 pieces of legislation in six months in the field of payments: an unprecedented accumulation, reflecting a consensus that is just as unprecedented!
First of all, it's undeniable that the public authorities are now listening attentively to fintechs, who have proved that these market openings create value. It should be noted that these texts are not simply projects put off until the Greek calendar, but, for the most part, regulations for immediate application, set to come out "really" quickly, which is something of a miracle... or a new maturity.
In the space of 8 years, the fintech sector has become more structured, under the impetus of key organizations such as France Digitale, France Fintech, Finance Innovation and AFEPAME, enabling interests to be aligned and a stronger voice to be heard. Furthermore, banks, despite being caught up in contradictory injunctions, have been honing their APIs and witnessing the gradual take-up of instant transfers and payment initiation, offering seamless transfer payment paths, thus becoming accustomed to collaborating or even partnering with fintechs to offer these solutions to their customers. These accelerated regulatory changes reflect a market that is finding its modus operandi.
Behind the texts, the challenges of collaboration are still slow to materialize
However, there are still key issues to be addressed if these new regulations are to reach their full potential. Starting with the fight against fraud, which is not taking full advantage of collaboration between banks and fintechs. At Fintecture, we are investing heavily in technologies capable of complementing banking systems, which are still burdened by complex information systems that are costly to transform rapidly. It is therefore in everyone's interest, first and foremost that of the citizens subjected to these fraudulent attacks, to provide a framework for information sharing between regulated establishments. The new texts touch on this collaboration, but remain timid, complex and therefore limiting.
The other challenge is for some banks to catch up technically. While the majority of banks have made significant progress, some are lagging behind, with APIs that are uneven, exclude business accounts or are even dysfunctional. The truth is, to guarantee reliable execution upon initiating a transfer, with clear payment statuses for a merchant, additional services need to be added. This is a situation that the regulator will have to adjust if it is not to penalize the growth of the market as a whole and the adoption of consumers, who are used to fluid digital services.
In addition, Payment Service Providers (PSPs) will soon benefit from the PSD3 and the Payment Services Regulation (PSR). This new European regulation will clarify the liability framework between fintechs, banks, and their customers, to the benefit of all. It is highly likely that this precise framework of responsibilities will enhance the performance of existing APIs under PSD2, as banks will be required to share information even more seamlessly with regulated entities such as fintechs.
Finally, a scheme (European contract) and two other key documents are currently being drafted. One, to be implemented by the European Payments Council starting in 2023, concerns premium APIs, which will be paid features added to existing PSD2-based APIs. These could enable other types of services (for example, the current PIS allows for immediate or deferred transfers but does not allow for pre-reserving an amount on an account, such as a credit card pre-authorization system). The others concernOpen Finance, which would expand access to payers’ financial data to include financial data not necessarily linked to payment accounts (such as savings accounts). The goal is to offer solutions even better tailored to the market and to improve the fight against fraud. Here too, significant advances could emerge: PSPs will be able to collect customer data very quickly and automatically, with their consent, and thus become key players in the credit market by being able to respond almost instantly to financing needs. Furthermore, the regulation on the digital euro will allow the European Central Bank to create a new currency, which could be directly accessible to payment institutions.
To learn more about these issues, check out our guide to European payment regulations, co-authored with the firm Onepoint.
