PSD2 or the European Payment Services Directive 2, has been in force since 2016 but payment services providers had until 2018 to adhere to the rules. The EU directive requires providers to incorporate heightened authentication features as well as taking aim at APIs that may boost innovation in financial services. It has been described as creating a single payments market as well as mandating certain open banking characteristics.
In October 2021, the EC requested that the Europan Banking Authority (EBA) submit feedback (or Call for Advice – CfA) regarding the review of PSD2 pertaining to benefits as well as challenges that may have arisen with regard to the implementation. This past week, the EBA published its response.
Available here, the EBA states that the objectives of PSD2 have “started to materilise” adding that “fraud rates are significantly lower” for payments. The EBA reports that authorised or registered Payment Institution (PISs), electronic money institutions (EMIs), and non-bank third party providers (TPPs) now number over 2700.
Regardless of the progress so far, the EBA provides its opinion on multiple fronts.
Pertaining to the merger of PSD2 and EMD2 [Electronic Money Directive 2], the EBA strongly supports this option:
“… this will be an opportunity to resolve a significant number of challenges faced by the industry and supervisory authorities in delineating between the two legal frameworks. Moreover, this would allow for further harmonisation, simplification and consistent application of the legal requirements for PIs and EMIs, avoiding regulatory arbitrage, ensuring level-playing field and a future-proof legal framework.”
The EBA proposes some changes to licensing of firms and a need to review the prudential framework including additional capital requirements, consolidating supervision and a centralized EBA registry.
On rights and obligations, the EBA believes there should be some adjustments to the legal framework on liability and blocking of funds.
The EBA suggests a common API framework stating standardization would level the playing field and reduce barriers to entry for new participants.
Addressing Open Banking [Open Finance] , the EBA states:
“In relation to the potential move towards Open finance, or the expansion from access to payment accounts data towards access to other types of financial data (such as savings, investments and insurance data), the EBA has identified opportunities and challenges leveraging on the experience and knowledge accrued during the implementation of the PSD2 requirements on access to payment accounts. In particular, some of the recommendations made to the Commission, should it decide to introduce a legal framework on Open finance, refer to expanding the SCA requirements under PSD2 to access to other type of account data, assessing the feasibility of a single (industry led) EU API standard, clarifying the interplay with the GDPR requirements, setting the right incentives for all parties to invest and participate in the Open Finance ecosystem, and carefully considering the interplay between the PSD2 and any potential future legal framework on Open Finance to avoid any grey area regarding the legal regime(s) applicable to AISPs or loopholes in said regime(s).”
CI received a comment from Dean Wallace, Director of Consumer Payments Modernisation at ACI Worldwide, addressing the merging of PSD2 and EMI. Wallace lauded the proposal stating:
“The EBA’s call for the EC to merge PSD2 and the E-Money Directive is a welcome move to consolidate the regulatory payments landscape across Europe. But it raises more questions than it answers – namely, will it solve the problem that PSD2 created for banks around customer loyalty and Big Tech’s subsequent encroachment on their turf? PSD2’s aim was to benefit merchants, by making things cheaper, and consumers, by creating more choice for digital convenience. In reality, we saw a sharp decrease in bank-led loyalty programmes as well as an increase of consumer choice in brands they likely did not recognise. While Big Tech hasn’t fully entered the EU payments landscape, consumers are already happy to put the sort of faith they need for payments into the hands of the tech brands they already trust with large parts of their lives. As such, there is a distinct possibility they could enter the space in a meaningful way, without regulatory scrutiny or cost of compliance, taking the banks’ already dwindling market share. While this is a good move from the EC and EBA, the ultimate questions around the future vision of European payments still need to be answered.”