In the world of European payments, things are changing, and they’re changing fast. Laws are shifting, reshaping the financial landscape we know. For businesses and entrepreneurs, it’s not just about keeping up; it’s about understanding the potential of the changes and choosing a provider that can navigate them in reaping the opportunities for their business.
As we approach 2024 it’s crucial to know what’s coming up in the payment scene.
Join us as we break down five important developments for 2024, changes that will be steering the payments ship for the remaining part of the decade.
Top 5 EU payment regulation developments & initiatives for 2024
Let’s start with unpacking the details and impacts of the key regulatory changes. It’s not just about change; it’s about making these changes work for a brighter financial future.
Instant payment regulation
In November 2023, a political agreement was struck between the European Parliament and the Council regarding the European Commission’s proposal to extend instant payments in euro to all EU citizens and businesses with a bank account.
These fresh regulations, aimed at modernizing the 2012 Single Euro Payments Area (SEPA) Regulation, strive to ensure that instant payments in euro are quick but also affordable, secure, and smoothly processed across the entire EU.
Instant payments provide speedy and convenient solutions for citizens, addressing everyday needs such as receiving funds promptly during emergencies or settling shared costs instantly in various social scenarios.
Additionally, these rules enhance cash flow management for public administrations and businesses, especially SMEs, facilitate quick access to funds for charities and NGOs, and foster the development of innovative financial services and products by banks.
Payment service providers dealing with euro credit transfers will be mandated to provide instant payments to all customers, ensuring the cost remains comparable to traditional transfers.
They will also be responsible for confirming that the payment reaches the intended beneficiary and raising alerts in case of potential errors or fraud before completing the transaction.
Furthermore, the new rules maintain the effectiveness of sanctions screening through a harmonized procedure, requiring instant payment providers to check their clients against EU sanctions lists at least daily instead of screening individual transactions.
Having commercially viable instant payments at scale is a much needed building block for Open Banking. Account-based payment service providers can be even more efficient in delivering services of great user experience and high quality to the marketplace.
PSD3 and PSR
In the dynamic landscape of European payments, the Payment Services Directive (PSD) has been a guiding framework, orchestrating electronic payments and shaping the contours of the banking ecosystem. Since 2019, PSD2 has governed digital payments and orchestrated open banking in the European Economic Area.
The goal behind PSD1, introduced in 2007 and updated as PSD2 in 2015, was to establish a flexible legal framework for an integrated EU payments market, encouraging innovation and growth in the retail payment sector.
Similarly, PSD3 and PSR aims to provide a regulatory framework that nurtures innovation while addressing the evolving market dynamics.
What are the key aspects of PSD3 and PSR?
- Strong Customer Authentication (SCA) and Open Banking Standards: Much like its forerunner, PSD3 focuses on enhancing Strong Customer Authentication (SCA) and the use of open banking services. This focus aims to facilitate seamless and secure transactions, instilling confidence in consumers transacting in the digital landscape.Data Protection and Privacy: The regulation prioritizes safeguarding user information and privacy. It aims to establish clear guidelines for communication between banks, customers, and merchants, ensuring robust data protection practices.
- Addressing Current Challenges: PSD3/PSR will, together with the proposed regulation regarding Instant payments, increase the innovation for cross-border payments. Furthermore, the updated directive could ensure that the legal framework encompasses all significant market players in the payments ecosystem, including technology companies.
- Fraud protection: PSR protects against payment fraud and aims to ensure top-level consumer protection, including instant payments. The directive supports the EU’s Retail Payments strategy’s objective of broad adoption of the highest security standards.
- Promoting Innovation and Growth: PSD3/PSR aims to overcome the fragmented approaches adopted by different EU member states by creating a unified regulatory framework. The new regulations will support the EU’s Retail Payment Strategy’s goal of facilitating cheaper international payments, adopting global messaging standards, and fostering connections between payment systems in various jurisdictions.
The impact on Fintech companies is undeniable and here we have analyzed some challenges and opportunities for the industry.
Financial Data Access Regulation
On June 28, 2023, the European Commission introduced the Open Finance Framework, a part of the Digital Finance Strategy, emphasizing the access and reuse of customer data with consent in diverse financial services.
The framework, including the proposed Financial Data Access Regulation (FIDA), aims to modernize the financial sector by facilitating secure sharing and customer data access.
FIDA focuses on consumers and businesses, establishing rights and obligations for managing customer data sharing beyond payment accounts. It addresses rules on access, sharing, and use of specific customer data categories, along with the authorization and operation of financial information service providers.
FIDA introduces three key novelties:
- Empowering customers to control the use of their financial data.
- Allowing financial institutions to charge other service providers for data access granted by customers.
- Promoting high-quality APIs and enhancing overall data quality.
FIDA is set to drive Europe’s transition to Open Finance, working with PSD3. The two initiatives complement each other by fostering the opening up of choice and control over customers’ financial data. However, looking at the proposals there are some key differences in how PSD3 and FIDA will be implemented.
The success of FIDA relies heavily on market participants collaborating multilaterally through schemes. FIDA also allows recovering some of the costs of sharing data with a reasonable margin on top.
This aims to encourage the market to provision high quality API services that can respond swiftly to changes in market demand.
SEPA Payment Account Access Scheme
In 2023, the European Payment Council introduced a pivotal scheme – the SEPA Payment Account Access (SPAA) scheme.
Crafted to establish a commercial framework for Premium APIs, this scheme tackles challenges stemming from common payment account limitations. It introduces new payment functionality in a model with remuneration possibilities for the participants.
The SPAA scheme rulebook, meticulously aligned with the ERPB Working Group’s June 2021 report on a SEPA Application Programming Interface (API) Access Scheme, lays down an exhaustive set of rules, practices, and standards.
The SPAA scheme is geared towards driving ‘open payments’ in the European Union (EU), aiming to foster value creation while ensuring a fair distribution of value and risk among scheme participants.
This framework seamlessly facilitates the exchange of payment account-related data and enriches the initiation of payment transactions.
Notably, the scheme revolves around something other than a specific payment means or instrument; instead, it focuses on facilitating the exchange of information related to payment accounts and transactions. Key benefits of the SPAA scheme include:
- Building on the investments made into Open Banking: Leveraging investments made in API platforms and services provisioned to Fintechs.
- Collaborative Development: Managed collaboratively by the retail payment industry, including supply and demand stakeholders and the end-user community, represented in the ERPB, with support from EU institutions.
- Harmonization and Interoperability: Enabling ‘premium’ payment services beyond PSD2 while ensuring harmonization, interoperability, and reachability across Europe. To achieve pan-European harmonization within the realm of SPAA API implementation, the EPC plans to implement a homologation process in a subsequent phase. This process aims to assess the adherence of SPAA API specifications, developed by standardization initiatives and their implementations, to the stipulated requirements in the rulebook.
- Monetizing Information: Allowing banks and other asset holders to expose information and transactions to fintechs and other asset brokers through the scheme for a fee, with prior consent from the asset owner.
- Evolutionary Potential: Positioned as a stepping-stone towards ‘open finance’ beyond payments and ‘open data’ beyond finance, adapting to evolving market demands.
As the SPAA scheme unfolds its potential, it sets the stage for a transformative era of premium APIs, poised to reshape the European payments landscape and unlock innovative possibilities in the realm of digital finance.
European Digital Identity Regulation
One key highlight of the European Digital Identity Regulation is the introduction of the EU Digital Identity Wallet (EUDIW).
This government-issued digital wallet aims to be universally accepted by relying parties, including banks.
This initiative seeks to facilitate cross-border use by ensuring:
- Access to highly secure and trustworthy electronic identity solutions.
- Public and private services can depend on trusted and secure digital identity solutions.
- Empowerment of natural and legal persons to utilize digital identity solutions.
- Linking of these solutions to various attributes, enabling targeted sharing of identity data restricted to the specific service requirements.
- Acceptance of qualified trust services in the EU and equal conditions for their provision.
The EUDIW is set to play a pivotal role in Strong Customer Authentication (SCA), revolutionizing the way payments are initiated and online accounts are accessed.
In essence, this regulation promises to alleviate operational and consumer challenges faced by Payment Initiation Services (PIS).
By eliminating hurdles like manual entry of credentials and unnecessary screens during the SCA flow, the EUDIW is expected to significantly reduce friction. The result? A smoother experience leads to higher conversion rates, a win-win for users and service providers.
In 2023, the European payment sector is undergoing a swift transformation marked by dynamic regulatory changes together with market driven initiatives.
Businesses must stay abreast of these developments, ensuring compliance with the evolving payment regulations and securing their operations to sustain competitiveness.
The regulations outlined in this article are strategically crafted to bolster security measures, safeguard consumer interests, and foster a culture of innovation within the financial industry.
By comprehending and aligning with these newly instituted legal provisions, businesses can adeptly navigate the shifting currents of the European payment sector, positioning themselves for prosperity in this ever-changing landscape.
For payment solution providers like Zimpler, maintaining a steadfast commitment to being a reliable partner in the payment industry is paramount.
Zimpler stands ready to assist businesses in seamlessly adapting to the nuances of new payment regulations and ensure that the business opportunities can be fully reaped.
Discover how Zimpler can support your business in complying with regulations, fostering innovation, and maintaining diligence for Instant Payments in Europe in 2024 and beyond.
It’s instant payments. Just Zimpler.
The information contained in this post is intended for informational purposes only, and should not be relied upon for professional advice of any kind. Zimpler does not make any representation or warranty as to the completeness or accuracy of the information, and assumes no liability or responsibility that may result from reliance on such information.