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European Commission - Questions and answers

Payment services: revised rules to improve consumer protection and

competition in electronic payments

Brussels, 28 June 2023

Background

What is PSD2? Why is it being reviewed?

The second Payment Services Directive (PSD2), adopted in 2015, sets out the rules for all retail

payments in the EU, euro and non-euro, domestic and cross-border. The first Payment Services

Directive (PSD1), adopted in 2007, established a harmonised legal framework for the creation of an

integrated EU payments market. PSD2 addressed barriers to new types of payment services and

improved the level of consumer protection and security. It aimed to:

ensure a level playing field between incumbent and new providers of card, internet and mobile

payments;

increase the efficiency, transparency and choice of payment instruments for payment service

users (consumers and merchants);

facilitate the provision of card, internet and mobile payment services across borders within the

EU;

help innovative payment services to reach a broader market; and

ensure a high-level protection for payment service users across all Member States.

The Commission was required to evaluate PSD2, in particular on charges, scope, thresholds and

access to payment systems. The evaluation took place in 2022, including

advice

from the European

Banking Authority (EBA), a general and targeted

public consultation

and a

report

from an

independent consultant. Following the evaluation the Commission decided to propose amendments

to PSD2, accompanied by an impact assessment.

What are the main changes being proposed by this revision?

These amendments represent an evolution not a revolution of the EU payments framework. The

amendments will improve the functioning of EU payment markets by:

strengthening measures to combat payment fraud;

allowing non-bank payment service providers (PSPs) access to all EU payment systems, with

appropriate safeguards, and giving them a right to have a bank account;

improving the functioning of open banking, especially as regards the performance of data

interfaces, removing obstacles to open banking services and consumer control over their data

access permissions;

reinforcing the enforcement powers of national competent authorities and facilitating

implementation of the rules clarifying various elements;

further improving consumer information and rights;

improving the availability of cash;

merging the legal frameworks applicable to electronic money and to payment services.

Why are electronic retail payments important?

As highlighted in the Commission's

Retail Payments Strategy

of 2020, effective and efficient retail

payment systems are essential for the smooth running of the economy and for private economic

operations between individuals. They are equally important for the EU's

open strategic autonomy.

The retail payments sector is at the forefront of digital innovation in financial services and multiple

developments (contactless payments, instant payments etc.) have taken place in recent years.

Electronic payments in the EU are in constant growth, reaching €240 trillion in value in 2021

(compared with €184.2 trillion in 2017). The COVID-19 pandemic accelerated this trend. TheStrategy announced the launch of a comprehensive review of the application and impact of PSD2,

“which should include an overall assessment of whether it is still fit for purpose, taking into account

market developments

”.

What did the evaluation of the PSD2 find?

The evaluation concluded that PSD2 has had varying degrees of success in meeting its objectives.

One area of clear positive impact has been that of fraud prevention, via the introduction of Strong

Customer Authentication (SCA), which has already had a significant impact in reducing fraud. PSD2

has also been particularly effective in increasing the efficiency, transparency and choice of payment

instruments for consumers, given the new means of payment that have sprung up since its

introduction. However, the evaluation finds that there remains an unlevel playing field between

payment service providers, due partly to the lack of direct access by non-bank Payment Service

Providers (PSPs) to certain key systems that are necessary to finalise payments. Open banking (i.e.

the secure sharing of financial data between banks and third-party service providers) was a major

innovation of PSD2. In spite of the emergence of many new non-bank providers on the market

offering open banking services, there has been mixed success in its uptake. Obstacles to data access

by account information service providers (services which collect and consolidate information on the

different bank accounts of a consumer in a single place) and payment initiation service providers

(services which establish a payment link between the payer and the online merchant) still remain.

While cross-border provision of payment services is increasing, many payment systems (especially

debit card systems) remain largely national.

Fraud and liability

What is the Commission's approach on payment fraud?

The Commission accords utmost importance to the issue of payment fraud. It believes that any

changes to the PSD2 liability framework should contribute to reducing fraud, without creating moral

hazard (if the consumers believe that they will always be compensated).

New types of fraud have emerged for which PSD2 is not equipped. For example, PSD3 will go beyond

the PSD2 tackling new types of fraud like “spoofing” (impersonation fraud), which blur the distinction

between unauthorised and authorised transactions, since the consent given by the customer to

authorise a transaction is subjected to manipulative techniques by the fraudster, who for example

uses the telephone number of email address of the bank. Prevention mechanisms such as SCA have

been insufficient to prevent such frauds until now. The IBAN/name check (where a payment is only

completed after verification by the bank that the name on the account ‘matches' the IBAN linked to

that name) can help prevent these types of fraud.

Given the continued existence of social engineering fraud, in which fraudsters manipulate a victim to

send funds to an illegitimate payee, the Commission is proposing additional anti-fraud measures

regarding both fraud prevention and redress.

The new proposed prevention measures include:

An extension to all credit transfers of IBAN/name matching verification services. These have

been proposed by the Commission for instant payments in Euro. All consumers should benefit

from them, for both regular and instant credit transfers;

A legal basis for PSPs to share fraud-related information between themselves in full respect of

GDPR (via dedicated IT platforms);

The strengthening of transaction monitoring;

An obligation by PSPs to carry out education actions to increase awareness of payments fraud