PSD3 What do you need to be prepared for?

With a draft of third EU Payments Service Directive (PSD3) poised to be unveiled in 2024, what can we expect and what could it mean for carrier billing and other payment mechanism? Paul Skeldon reports

The EU is poised to publish a draft of its next Payments Service Directive (PSD3) in 2024, with EU members then given some 18 months to veto and amend. So, while it may be 2026 before it comes into force, it is already causing a stir in the payment industry.

WHAT IS IN IT?

Firstly, what is the PSD3 going to give the world? In short, no one really knows the detail, but broad brush strokes reveal that it will, according to fintech company TrueLayer, cover:

• The move from a Directive to a Regulation: standardising payments across the EU

• Better APIs: better open banking services

• More streamlined authentication: less pain at the checkout

• Direct access to payment systems for fintechs: a boost for innovation

• IBAN and name matching: a risk-based approach to fraud prevention

• Merging E-money and pay- ments institutions: simplifying licensing

• Re-authorisation for firms under PSD3

For the fintech market and the banks, attention has been broadly focussed on redressing the unbalance introduced in PSD2, whereby banks had to share their data and access to their systems with non-banking fintechs under the auspices of creating more open banking.

Now, in the interests of data enrichment, banks want the favour returned. Whether this will happen or not remains to be seen, but if it does it could lead to not only better services from banks, but also could create even more competition and efficiency in the open banking sector.

WHAT’S IN IT FOR TELEMEDIA?

This is good and bad news for telemedia. For the VAS community, increasingly competitive payments and a broader range of payment tools could be a boon.

The more choice consumers have as to how to pay largely means more of them part with their cash. If PSD3 does anything specific for microbilling and brings in greater antifraud protection then there are even more benefits for the VAS market.

However, more competition in payments will add pressure to DCB, with customers and merchants maybe being offered more tempting offerings. Conversely, this growing competition in payments could see DCB – via MNOs – raise its game to become a much more cost-effective and widely used tool.

There are rife rumours too that PSD3 could do away with the €50 limit to carrier billing and other exemptions seen across this particularly payment tool. On the face of it, lifting the exemptions could prove problematic for carrier billing services. However, all it takes is for there to be a shift among MNOs to become payment agents and suddenly DCB could be pitted again all other digital payment tools and could be used to pay for anything –large, small, digital and physical.

There are already rumblings of this happening in Germany, where DCB provider InternetQ is regulated as a payment institution (see page 10). This may yet usher in the era of carrier biling becoming a mainstream, multi-purpise payment tool if the operators play ball.

What about post-Brexit Britain?

PSD3 is a purely European Union initiative. It seeks to improve and modernise payments in Europe, harmonising and extending. That, of course, no longer applies to the UK.

However, it is widely understood that the UK will seek to ape the key elements of PSD3 into its own payment regulations. In fact, it is thought that the country may take the ideas mooted in PSD3 and expand on them.

There is form for this. Under PSD2 – negotiated when the UK was still in the EU – the UK not only signed up, but took the open banking portions of the legislation and boosted them, creating an open banking model in the UK that goes far beyond that of Europe.