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Payment Services: Revised Rules Enhancing Consumer Protection and Competition in Electronic Payments

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The world of electronic payments is constantly evolving, and to keep pace with the changing landscape, the European Union (EU) has undertaken a review of the second Payment Services Directive (PSD2). The revised rules aim to improve consumer protection, promote competition, and address emerging challenges in the digital payments space.

The Payment Services Directive (PSD2) was adopted in 2015 as a framework for all retail payments in the EU. It sought to level the playing field between traditional and new payment service providers, enhance transparency and choice for consumers and merchants, facilitate cross-border payment services, encourage innovation, and ensure high-level protection for payment service users. Following the evaluation of PSD2, the European Commission decided to propose amendments to address challenges and capitalise on market developments.

In this blog, we explore the key aspects of the PSD2 review, including its objectives, proposed changes, the importance of electronic retail payments, evaluation findings, and the Commission’s approach to payment fraud.

Proposed changes in the PSD2 revision

The amendments to PSD2 represent an evolution rather than a revolution of the EU payments framework. The proposed changes focus on several key areas:

Strengthening fraud prevention measures

To combat payment fraud more effectively, the amendments reinforce measures such as Strong Customer Authentication (SCA). They address new types of fraud, like impersonation fraud or “spoofing,” by introducing prevention mechanisms such as IBAN/name matching verification and transaction monitoring. Additionally, the proposed measures encourage payment service providers to share fraud-related information and implement education initiatives to raise awareness among customers and staff.

Access to payment systems for non-bank providers

The amendments ensure that non-bank payment service providers (PSPs) have access to all EU payment systems, subject to appropriate safeguards. This provision levels the playing field between incumbent and new providers, fostering competition, innovation, and a broader market reach for payment services.

Improving open banking and consumer control

The revision aims to enhance open banking services by addressing obstacles related to data access permissions. It focuses on improving the performance of data interfaces and removing barriers that limit consumer control over their data. By strengthening open banking provisions, consumers can benefit from a wider range of services and increased transparency.

Reinforcing national competent authorities’ enforcement powers

The proposed amendments reinforce the enforcement powers of national competent authorities responsible for supervising payment services. This enhancement facilitates the implementation of rules, ensures consistent enforcement across the EU, and promotes a more effective and transparent regulatory framework.

Enhancing consumer information and rights

The proposed changes further improve consumer information and rights in payment services. By providing clearer and more comprehensive information, consumers can make informed choices and better understand their rights and responsibilities. The amendments also aim to extend refund rights for consumers in specific situations, offering them greater protection and peace of mind.

Improving availability of cash

Recognising the ongoing importance of cash in certain transactions, the proposed changes emphasise the need to maintain and improve its availability. This ensures that consumers have access to diverse payment options and can choose the method that best suits their needs.

Merging legal frameworks for electronic money and payment services

To streamline and simplify regulations, the amendments propose merging the legal frameworks applicable to electronic money and payment services. This consolidation aims to create a more coherent and efficient regulatory environment, reducing complexity and facilitating compliance for market participants.

Importance of electronic retail payments

Retail payment systems play a crucial role in the economy, facilitating private economic transactions and ensuring the smooth functioning of financial operations. The EU’s Retail Payments Strategy acknowledges the significance of retail payments for the economy and emphasises the need for efficient payment systems. Electronic retail payments have witnessed significant growth, with contactless and instant payments driving the surge. In 2021, the value of electronic payments in the EU reached €240 trillion, a substantial increase from €184.2 trillion in 2017. The COVID-19 pandemic further accelerated this trend, highlighting the importance of robust and secure electronic payment solutions.

Evaluation of PSD2 and findings

The evaluation of PSD2 revealed varying degrees of success in achieving its objectives. The introduction of Strong Customer Authentication (SCA) has significantly contributed to fraud prevention and increased transparency and choice for consumers. However, the evaluation identified an unlevel playing field between payment service providers, particularly concerning the limited access of non-bank PSPs to essential payment systems. Despite the introduction of open banking, obstacles remain in data access for account information and payment initiation service providers. Additionally, while cross-border provision of payment services has improved, certain payment systems, primarily debit card systems, remain predominantly national.

Commission’s approach to payment fraud

The European Commission places significant emphasis on combating payment fraud. In the proposed revision, the Commission aims to introduce additional anti-fraud measures to address emerging threats. New types of fraud, such as “spoofing,” where fraudsters manipulate customer consent for transactions, require enhanced prevention mechanisms. Proposed measures include:

  • Extension of IBAN/name matching verification: The Commission proposes extending IBAN/name matching verification services to all credit transfers. This mechanism verifies that the name associated with a bank account matches the provided IBAN, helping prevent fraud in both regular and instant credit transfers.
  • Facilitating information sharing: The amendments provide a legal basis for payment service providers to share fraud-related information with each other. This information sharing, done in full compliance with the General Data Protection Regulation (GDPR), enables a collaborative approach to fraud prevention.
  • Strengthening transaction monitoring: To detect and prevent fraudulent transactions, the amendments reinforce transaction monitoring requirements for payment service providers. This step aims to enhance the security and integrity of payment systems, protecting both consumers and businesses.
  • Education and awareness actions: The proposed measures mandate payment service providers to carry out educational initiatives to increase awareness of payment fraud among their customers and staff.
  • Expanded consumer refund rights: The amendments seek to extend refund rights for consumers in specific situations. This expansion ensures that consumers are appropriately protected, particularly when they fall victim to fraudulent transactions or unauthorized activities.

The proposed revision of PSD2 reflects the EU’s commitment to fostering a competitive, secure, and consumer-centric digital payments ecosystem. The amendments focus on strengthening measures to combat payment fraud, facilitating access for non-bank PSPs, improving open banking services, reinforcing consumer rights, and harmonizing legal frameworks. As electronic retail payments continue to thrive, these revised rules will help ensure a level playing field, enhance consumer protection, and drive innovation, ultimately benefiting businesses and individuals alike in the fast-evolving world of electronic payments.

How Neopay can help

The evolving regulatory landscape in the electronic payment industry demands careful consideration and swift action from businesses to ensure compliance and uphold consumer protection standards. With years of experience in the payments industry and an in-depth understanding of the intricate regulatory landscape, Neopay is well-equipped to support firms in navigating the complexities of evolving regulations. Our range of tailored compliance solutions, combined with our expert advice and guidance, help financial services firms meet their compliance obligations with confidence.

Contact our team of experts today to learn more about how we can support your business in implementing regulatory changes and achieving long-term compliance success.

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