The Future of Finance in Europe is ‘Open’

The European Union (EU) remains constantly evolving, and this includes staying up to date with the latest trends and regulations regarding the financial world. In its latest attempt to promote innovation within established financial institutions (FIs) and Fintechs, the EU recently published its proposals for the 3rd Payment Services Directive (PSD3) and the Payment Services Regulation (PSR).

Also in June 2023, the UK Joint Regulatory Oversight Committee (JROC) announced its roadmap for Open Banking and then in November the Future of Payments Review report commissioned by the UK Government was published. Joined as part of the Chancellor’s Autumn Statement.

Apexon can help your financial institution prepare for this new world and its constant changes strategically, culturally and technically. Here we explain how, and also summarize the future of the world of payments in Europe.

From PSD2…

Before the most recent updates, we also had PSD2. This Directive generated changes that, even today, continue to be adopted by many banking institutions. This means that PSD3 is probably not welcomed in the best way by teams that are still struggling with a past implementation.

PSD2 had the main objectives of balancing the financial market and driving innovation, forcing banks to relinquish control over customer data and payment initiation. Specifically, this directive took a lot from the banks, and didn’t give them much back.

Banks have complied with regulations, not only because it was the law, but with a long-term vision in mind they accepted that innovation in financial services is essential and inevitable. PSD3 specifically aims to redress the imbalance created by PSD2 and provide more opportunities for traditional financial institutions, while also offering new services and protections for consumers.

One of the main differences we noticed regarding these regulations is that PSD2 revolutionized the market, while PSD3 focuses on evolution. PSD2 required the development of important new technical capabilities. For example, Strong Customer Authentication (SCA) requirements mean banks must think more like e-commerce businesses, verifying customers’ identities and making decisions about their spending intentions in milliseconds, rather than hours as they used to. do. With PSD3, this hard work and new technologies are starting to pay off..

…to PSD3

Now we have PSD3, which introduces the concept of “premium API”, providing a fee framework for banks to charge for access to data. Integrators directing large amounts of traffic to banks’ APIs will be charged a small fee, while all integrators may be charged for additional data beyond that required by PSD3 (e.g. investments, bonds, etc).

The cost of fraud should reduce too, with new rules around information sharing between institutions coming into effect. Errors in transferring money should also be minimised with the introduction of name-checks for IBANs. The PSR lays out clear expectations and quality measures for how PSD3 needs to be implemented too, unlike PSD2 which left much of the implementation detail to individual member states to work out. This clarity will help to harmonise the experience and mechanics of payments from Portugal to Poland.

Leaving the largest changes to last, PSD3 introduced new Financial Data Access standards under the banner of “FIDA”, posing huge opportunities for banks and fintechs to share and even monetise their data – provided customer consent was given. And finally, although not part of PSD3 or PSR, the European Commission tabled a consultation for a Digital Euro. The Digital Euro will give citizens a “cash-like” way of using their Euros seamlessly across digital platforms and in shops. The Digital Euro will even work “offline”, although how this will work in practice is still being explored.

Future of Payments in the UK

In the UK, the goals of PSD3 are being mirrored in the Open Banking Roadmap. Meanwhile the UK’s trial of Variable Recurring Payments (VRP) – powered by PSD2 capabilities – has allowed consumers to ‘sweep’ money from current accounts to savings, creating a range of new fintechs offering smartphone-based account information services and budgeting tools.

While the EU is looking to put the Euro into your smart device with a bloc-wide Central Bank Digital Currency (CBDC), the UK is betting heavily on new Open Banking capabilities driving more point-to-point payments between consumers and from consumers to merchants. This approach uses the payments infrastructure to move money from account to account without incurring charges from the payment card networks but doesn’t work offline.

Conclusion and Opportunities

Whether you work for a large bank with centuries of prestigious history, or for a brand new fintech startup, there are opportunities abound throughout the new regulations.

Banks and building societies can improve the lending experience by embedding Open Banking-powered affordability checks directly into the application process.

Apexon’s digital experts can help identify use cases and design best-in-class Premium APIs to get out ahead of the competition. Apexon’s data security experts can help design the right governance strategy and tools to ensure customer data stays safe whilst keeping authorised access in a bold new FIDA world.

And as for anti-fraud measures, Apexon’s proven track record with EdgeDetect and PayAssure demonstrates our expertise in AI anomaly detection, which can feed into fraud data interchange systems.

The future of payments across Europe looks very different. The question is, will you follow the pack or lead the market?