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Brussels has finally launched its much-anticipated review of the revised Payment Services Directive (PSD2), as well as announcing it is looking for information to inform its work regarding open finance.
PSD2 has been a groundbreaking piece of legislation in the EU, opening up access to customers’ payment accounts data, enabling third-party providers to offer competing financial or information services.
Although PSD2 has been celebrated by many, it has also been divisive, with one source having told VIXIO that it was the “most lobbied against piece of EU legislation”.
Now, the European Commission has released two new consultations, which are both running for ten weeks.
One is looking for feedback regarding PSD2 and one is focused on open finance, with the EU aiming to introduce a legal framework before 2025.
In it open finance consultation, the commission is looking for answers on issues such as the use of confidential customer data collected for the purpose of providing financial services, and asking from what open finance products that retail customers and corporate customers would benefit.
In a departure from PSD2, one of the questions asks stakeholders whether financial firms holding customer data should be entitled to compensation by third parties for making the data available in appropriate quality, frequency and format.
The consultation also probes stakeholders on what policy measures would be important to ensure a level playing field in terms of access to customer data.
Stakeholders now have until July 5 to respond to the consultations.
What feedback does the commission want on PSD2?
In its request for feedback on PSD2, the European Commission does not make specific proposals but does hint at where it will be looking to reform the legislation.
The consultation looks at the current transparency rules regarding payments and whether they are adequate. For example, payment service providers (PSPs) are required to be transparent about all charges payable by the payment service user to the PSP, the maximum execution time of the transaction and the type of information provided to payers and payees after transactions have been executed.
These are, however, not applicable to so-called "one-leg transactions", when a transaction is executed to somewhere outside the EU.
In the consultation, the commission in fact hints at enhancing the rules surrounding one-leg transactions, with one question looking at whether currency conversion information should be disclosed, as well as execution time.
So-called "triangular passporting" is also touted as a possible area in need of regulation. This occurs when an authorised service provider in member state A makes use of the services from a provider, such as an agent, in member state B, to provide payment services in a third member state.
Stakeholders have further been asked whether current authorisation rules could be simplified, making it easier for PSPs to get authorised in the EU, as well as whether safeguarding measures need to be changed.
In a nudge toward the EU’s de-risking problem, the commission asks whether Article 36, which provides the right for payment institutions to access credit institutions’ payment account services, should be modified by extending it to the termination of business relationships in addition to access.
It also asks whether the European Banking Authority (EBA) should be mandated to provide guidance on the application of Article 36, and whether there should be a common reporting template for rejecting applications to open an account.
What are the experts saying?
Trade associations have welcomed the launch of the consultations, with a spokesperson for Payments Europe telling VIXIO: “We have been strong advocates of PSD2 since its creation, firmly believing in the benefits that it has brought to consumers, merchants and the overall industry."
“The consultation comes at a key moment for the payments sector and we believe that there are still some issues that need to be addressed,” the spokesperson continued, pointing out that the technical implementation of payment fraud management via strong customer authentication (SCA) processes has been complex and lengthy, and can be further improved.
Payments Europe would support a targeted review of these specific rules, such as the regulatory technical standards (RTS), the spokesperson suggested. “Additionally, we call for further optimisation of the open banking framework in order to speed up its uptake and grasp the full benefits.”
Ralf Ohlhausen, chair of the European Third Party Providers Association, meanwhile, said that the lobby group is “very happy” about the consultation, adding that it “opens the opportunity to fix all the issues we have discovered since it went live a few years ago. This will be quite a task as there are a lot.”
“Out of PSD2’s three main objectives, increasing competition, innovation and security, only the last one is on track and maybe even over the top, with arguably too many SCAs left, right and centre,” he said.
Where banking was rather closed before, Ohlhausen continued, pointing to the UK, France and southern Europe, PSD2 has played an important role in removing some barriers to innovation and fostering competition.
“Although it has not been as impactful as was originally intended. Where banking was already quite open beforehand, like in Germany, Austria, and the Nordics, we see a big step backwards, actually.”
For Ohlhausen, the outcome also varies depending on the maturity of a third-party provider, and in particular whether it existed already before PSD2 or not, considering that the former were forced to replace their tried and tested technology with new APIs that did not work, and most of which still have numerous obstacles built in.
“So the biggest issue of all is governance,” he said. “The EBA’s role is to 'ensure effective and consistent prudential regulation and supervision across the European banking sector' and the national competent authorities have similar objectives, and that’s exactly what they did.”
In contrast, these authorities have no mandate to drive innovation and competition and hence it is not surprising that the EU has not got very far with that, he argued. “Maybe we could learn a bit from the UK approach, which involved the competition authority in quite a decisive manner.”
However, this is just the very tip of the iceberg, said Ohlhausen. “There is a very, very long list of specific issues, which we have already provided to the commission, and we will continue to do so.”
The European Commission is being receptive, he said. “They are actually our silver lining in this, as they have been very receptive and not at all defensive, as one might expect.”
