How open banking is changing?

How open banking will change after entering into force new PSR and PSD3?

Unlocking the Future of Open Finance with PSD3/PSR

The financial landscape in the European Union is on the cusp of a transformation, with the arrival of PSD3 (Third Payment Services Directive) and PSR (Payment Service Regulations) on the horizon. These regulatory changes are poised to revolutionize electronic payments and the broader banking ecosystem within the EU’s single market. In this detailed exploration, we will unravel the intricacies of PSD3, shed light on the significance of PSR, and delve into the evolution of open banking opportunities and challenges.

**PSD3: Enhancing Consumer Protection and Fostering Competition**

PSD3, the eagerly awaited legislation, is designed to bring about comprehensive reforms in electronic payments and banking practices. At its core, the primary objective of PSD3 is to introduce updated rules that center around two pivotal aspects: enhancing consumer protection and promoting competition in electronic payments.

This legislation marks a critical juncture in the EU’s financial landscape, with a focus on safeguarding the interests of consumers while simultaneously fostering a competitive environment for payment service providers.

**Understanding the Role of PSR**

In the context of PSD3, the PSR (Payment Service Regulations) plays a crucial role. It encompasses a wide array of regulations that pertain to the activities of Payment Service Providers (PSPs). These regulations integrate certain provisions from the Regulatory Technical Standards for Strong Customer Authentication and Common and Secure open standards of Communication (RTS on SCA & CSC). Additionally, they draw from guidelines and opinions issued by the European Banking Authority.

The PSR serves as the regulatory framework that ensures the implementation of PSD3’s key principles across payment service providers, contributing to a standardized and secure financial ecosystem.

**Evolution of Open Banking under PSD2**

Before we dive into the specifics of PSD3 and PSR, it’s essential to understand the pivotal role played by PSD2 (Second Payment Services Directive) in shaping the open banking landscape. PSD2 was a game-changer, ushering in significant opportunities for open banking. Under open banking, Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs) stepped into the scene, providing or enabling value-added services by accessing user account data upon request.

The introduction of PSD2 provided a stable regulatory framework for open banking, obligating banks to facilitate secure access to payment data for AISPs and PISPs through dedicated interfaces. These value-added services spanned a wide spectrum, from offering comprehensive financial overviews to analyzing spending patterns and financial needs.

Moreover, PSD2’s implementation led to the emergence of new payment methods, contributing to enhanced efficiency, transparency, and payment options in the financial sector.

**Challenges Faced Under PSD2**

Despite its transformative potential, PSD2 also brought about a set of challenges in the open banking landscape:

1. **Technical Infrastructure**: Variations in the quality and functionality of APIs led to frequent failures in open banking operations.

2. **Trust Concerns**: Consumers expressed concerns regarding data privacy and the extent of information companies might gather about them.

3. **Ambiguity**: The rights and responsibilities of financial services companies and open banking participants lacked clarity, creating uncertainty.

4. **Security Risks**: Increased access through open banking raised the risk of cyberattacks, posing a significant concern.

5. **Data Standardization**: The lack of standardized data posed a challenge in sharing consistent information across open banking platforms.

6. **Data Management**: Concerns arose regarding whether companies would handle consumers’ data in their best interests.

**PSD3 and PSR: Addressing Open Banking Challenges**

PSD3 and PSR emerge as pivotal instruments for addressing the challenges faced under PSD2 and propelling open banking into a new era:

1. **Streamlining SCA**: PSD3 simplifies Strong Customer Authentication (SCA) requirements for initial access to payment account data. Banks will only require SCA for the initial access, unless fraud is suspected. Subsequent data access becomes the responsibility of AISPs and PISPs.

2. **Dedicated Data Access Interfaces**: Proposed regulations introduce significant requirements for dedicated data access interfaces, aiming to eliminate obstacles to open banking services.

3. **Consumer Control Dashboard**: Banks and payment account providers will establish user-friendly dashboards, allowing consumers to manage their data access permissions conveniently. This enhances data protection, aligning with GDPR principles.

4. **Business Continuity**: Recognizing the critical importance of uninterrupted data access, PSD3 allows open banking providers to use alternative interfaces temporarily in case of disruptions in the bank’s primary interface.

5. **Standardization of Data**: PSD3 mandates the right for customers to access their data electronically and without additional charges. It introduces a general obligation for data holders to make customer data available upon request.

Standardization of data interfaces and customer data sharing schemes is integral to enabling seamless data aggregation and sharing across the EU’s financial sector. This move aims to establish a clear liability framework and dispute resolution mechanisms.

In conclusion, PSD3 and PSR represent a significant leap forward in the evolution of open banking. These regulations not only address the challenges faced under PSD2 but also pave the way for a more secure, standardized, and customer-centric open banking ecosystem. As these changes take effect, consumers can look forward to enhanced data protection, seamless financial experiences, and greater control over their financial information.