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Four key trends driving payments regulations
We see four main sector trends that contextualize PSD3 and PSR: emerging fraud risk, increased competition from non-bank payment companies, the development of open banking and the wider regulatory agenda.
Emerging fraud risks
One goal of PSD3/PSR is to “strengthen user protection and confidence in payments”, with action having been prompted not just by the remarkable growth of the payments sector, but also the emergence of increasingly sophisticated fraud.
The draft texts require a range of measures from banks and PSPs. One key requirement is mandatory checks to ensure a payee’s name matches the international bank account number (IBAN) bank account name, to help combat fraud involving impersonation or “spoofing.” Another is to monitor fraud and share data and other information including unique identifiers, manipulation techniques, fraudulent credit transfers, and identified patterns of behavior with each other. PSPs will also need to have programs to raise customers’ awareness of fraud risks and help them stay safe.
To meet these requirements, PSPs may need to enhance verification mechanisms to conduct IBAN name checks, establish fraud monitoring, data-sharing protocols and potentially upgrade infrastructure. Regulation also requires consumer education campaigns and annual employee fraud training, among other steps.
However, they can also identify broader opportunities to reduce fraud, and to communicate with customers in ways that strengthen corporate reputation and trust, increasing loyalty.
Increased competition
The European Commission has explicitly stated that it is aiming at “further levelling the playing field between banks and non-banks” with the implementation of PSD3 and PSR. Payment institutions will be able to access EU payment systems, with appropriate safeguards, reducing dependency on banks and offering services direct to customers and banks.
Furthermore, the new PSR will increase harmonization and enforcement, making rules and their application more consistent across Member States. This could particularly increase competition for incumbent banks and payment institutions that may have benefited from varying approaches across Member States where they operate.
Although meeting these requirements will be essential, all players in this competitive, and sometimes low-margin, market need to think strategically, too. New entrants may appear, pricing could become even more competitive and companies may need to focus even more carefully on customer experience to ensure they acquire and retain them. Collaborative thinking across different parts of payment companies will be essential.