15-03-2024 09:22

What are PSD3 and PSR?

The third Payment Services Directive (PSD3) and the Payment Services Regulation (PSR) are a new set of legislative proposals from the European Commission that bring changes to the foundational framework of the European payments market. They will have a significant impact on banks, fintechs, payment service providers and customers, both from a legal and operational perspective. PSD3 and PSR are the evolution of PSD2, with the purpose of further harmonising the payment market and decreasing the space for national variation.

PSD3 is a proposed EU directive about payments, data and security. The number 3 means that it is an update to the PSD2 directive that came into effect in 2018 in Denmark, Finland and Sweden and in 2019 in Norway. PSD2 was an update of the original PSD directive from 2007. PSR, Payment Services Regulation, is a proposed legislation introduced together with PSD3, that consists of articles from PSD2, accompanied by clarifications and some new articles.


The objectives of PSD3 and PSR

  • Combat and mitigate payment fraud
  • Improve consumer rights
  • Further level the playing field between banks and non-banks
  • Improve the functioning of open banking
  • Improve the availability of cash in shops and via ATMs
  • Further harmonise the EU payment market and strengthen the enforcement of applicable laws

What are the key differences between PSD3 and PSR? 

The European Commission has concluded that PSD2 was largely successful. It significantly reduced fraud, enhanced security, boosted innovation and saw the successful emergence of Open Banking. However, there is room for improvement, and, to address this, the new regulation has been divided into two parts. PSD3 remains a directive, focusing primarily on licensing and the operation of payment service providers. It will continue to be incorporated into local legislation. The rest of what was previously under PSD2 is now covered by PSR, a regulation that covers most of the banks’ responsibilities, and automatically becomes law for all EU member states. 


What will PSD3 and PSR mean for consumers?

From a consumer viewpoint, the most important things in PSD3 and PSR are:

  • Enhanced Strong Customer Authentication (SCA) – which will contribute to safer buying experiences 
  • Stricter rules on access to customers' payments and account information
  • Stronger protection of consumers' rights and personal information
  • A permission dashboard for customers to see which open banking permits they have granted
  • Increased competition in the payments industry – which will result in new and better products and services for consumers

What will PSD3 and PSR mean for banks?

PSD3 and PSR will strengthen Open Banking further and continue the journey of embedding financial services in third-party solutions, making banking more open and banks less visible. PSD3 and PSR will put requirements on banks when it comes to, for example:

  • Stricter demands on banks to improve their technical performance
  • Tougher sanctions, in case of confirmed incompliance
  • No more national flavours, which will contribute to a more streamlined implementation of the new requirements 

Providing payment services on par with required performance creates a significant challenge for banks. Nevertheless, the goal is to deliver exceptional and innovative services to our customers, which is a positive outcome. At Nordea we welcome the new legislation as we have embraced Open Banking since its beginning. We will continue to keep our customers' assets safe while also offering innovative and cutting-edge financial solutions.


The impact of PSD3 and PSR on innovation and competition 

When PSD2 was introduced, it ushered in a wave of fresh ideas, third-party services and solutions. However, the industry has settled into a routine state, and there is a desire for more innovation and excitement. PSD3 and PSR, while building on PSD2’s foundation, aim to simplify use cases, standardise operations across markets and countries, and increase competition. While it may not revolutionise the industry, it looks to inject new energy into innovation and once again invigorate the payment service industry by providing the breeding ground for a greater choice of payment services on the market. 


The PDS3 and PSR proposals are now being reviewed by the European Parliament and Council. The exact timelines for entry into force are not yet known, but based on the usual legislative process, the final versions may become available by the end of 2024 or early 2025. Since EU member states are usually granted an 18-month transition period, the PSD3 directive and the PSR regulation will likely start to apply during 2026.


What comes after PSD3, PSR and Open Banking: Open Finance

Did you know that there is a new EU directive on the way, which might change financial services even more? 

Read more about Open Finance here