The free-to-download explainer from Brite Payments unpacks the complicated (and often misunderstood) EU Payment Services Directive. Why is open banking so revolutionary for merchants? And what can they expect from the next revision of the directive, PSD3?
Here are some key takeaways:
Simpler, more effective security
The new security measures under PSD3 that would replace the regular SCA could include biometric authentication and tokens.
Biometric authentication is already widely used by smartphone users. Fingerprint technology such as Apple’s Touch ID was first introduced in 2013. Facial recognition hardware will be present in 90% of smartphones by 2024.
Tokenisation involves replacing customer data with a unique identifier (token). Tokens can help reduce the risk of fraud and protect customer privacy. This can be useful when adopting digital wallets, which provide consumers with secure and convenient ways to store payment information. This includes bank account numbers and other identifiers, without carrying physical cards.
Harmonisation of API standards
The lack of technical standards has led to different API solutions in the EU. According to a survey conducted in 2021 by the European Central Bank, there are currently seven European API standards and other national standards. Around 78% of EU countries use The Berlin Group’s NextGenPSD.
As no industry benchmarks for best practices and conventions exist, TPPs must rely on the APIs provided by banks. Investigating and overcoming differences between APIs are significant drains on resources for TPPs. A uniform European API standard in PSD3 would help reduce barriers for new market entrants. They would also guarantee the quality of the data banks provide.
Easier access to financial services
The complexity of finance leaves many consumers with little understanding of investments or financial products like savings and budgeting. Enhanced SCA rules and standardised APIs are just some of the measures that would help consumers in the EU better manage their money and adopt new ways of spending.
A common API introduced under PSD3 would also support the development of open finance. This offers significant potential benefits for merchants. Open Finance is “the expansion from access to payment accounts data towards access to other types of financial data, such as savings, investments and insurance.”
eba.europa.eu/sites/default/documents/files/document_library/Publications/Opinions/2022/Opinion od PSD2 review (EBA-Op-2022-06)/1036016/EBA’s response to the Call for advice on the review of PSD2.pdf(opens in a new tab)
A potential overlap between open banking and open finance within PSD3 will make it easier to gain a comprehensive picture of customers’ financial status. This would enhance tools like account information services. AIS are designed to help merchants obtain up-to-date data that helps them make better decisions regarding identity and affordability.
For instance, a merchant sees over liquidity, i.e. funds left on the account every month. Instead of keeping them in a transaction account, the money could be invested or allocated differently. This would generate more returns and thus value. The same goes for identifying expensive credit.
How Brite helps merchants meet new standards
Implementation of PSD3 will differ slightly from bank to bank. This is due to the complex internal processes and technology each institution uses. Moreover, it can be tricky for a bank to adapt its entire tech stack to the new standards set by the revised legislation without disrupting the customer experience.
Brite Payments is ideally positioned to handle all the necessary connections and testing to ensure merchants comply with EU rules and standards. Brite’s simplified and well-documented API solution means there is just one integration for merchants to use. Moreover, we follow the industry closely to ensure everything we do follows the latest guidelines.
Brite is an open-banking payment service provider that enables merchants to securely and instantly receive money from customers, removing risk, improving cash flow, and reducing commission fees. Our solutions are compliant with all existing PSD2 legislation and future-proofed against updates.
If you want to stay up to date with PSD3 and ensure fast, secure transactions to and from your business, let’s talk!