What Is the Payment Services Regulation (PSR)?
Alongside the most recent update to the Payment Services Directive, PSD3, the Payment Services Regulation (PSR) is perhaps one of the most important pieces of legislation to impact European payments.
PSR is set to transform the financial ecosystem, foster competition, enhance security, and protect consumers across the EU. It will also influence open banking and the broader payments market, including potential decisions made by the Payment Systems Regulator (also known as the PSR) in the UK.
In this article, we’ll cover the Payment Services Regulation (PSR), its key provisions, how it relates to PSD3 and its applications and impact in the EU and beyond.
What is the Payment Services Regulation (PSR)?
The Payment Services Regulation (PSR) is a framework of rules designed to govern payment services and payment service providers (PSPs).
The PSR stems from the latest update to the Payment Services Directive (PSD3) proposals, which laid the groundwork for a unified European retail payments market.
Previously, the revised Payment Services Directive (PSD2) expanded access to account and payment information for third-party providers (TPPs), laying the foundation for EU-wide open banking standards as we know them today.
PSR proposes various changes, ranging from high-level regulatory changes to specific information transfer mandates.
The final text of the PSD3 and PSR documents is expected in 2025. With an 18-month transition period, they are expected to come into full effect in 2026 – the precise timing is not yet certain and may change.
The main objectives of the PSR include:
- Encouraging competition and innovation in the payments market
- Enhancing consumer protection and ensuring fair treatment for payment service users, including ASPSPs, banking customers, and providers like Brite
- Promoting transparency in fees, charges, and service terms
- Increasing the security of payment systems, particularly for online and electronic transactions
Learn more about PSD2 and PSD3 in our explainer.
What is the difference between PSD3 and PSR?
The Payment Services Directive (PSD3) and the Payment Services Regulation (PSR) are both part of one legislative package from the European Union (EU).
The main difference between them is that the regulation – the PSR – sets rules that don’t need to be transposed: they’re directly applicable, whereas the PSD3 contains rules that need to be transposed into local legislation before they become applicable.
In short, this means all EU member states will follow the same rules around payment services. It harmonises the user experience for consumers and simultaneously ensures there are no local deviations in rules between member states.
Key provisions of the PSR
The purpose of the PSR is to ensure transparency, competition, innovation, and security in the payment sector while simultaneously protecting consumers and businesses using their services.
Here’s an overview of some of the key provisions of the PSR:
- Strong Customer Authentication (SCA): SCA aims to enhance security and reduce fraud in electronic payments. It mandates two-factor authentication and applies to most electronic transactions.
- Open banking and third-party access: Open banking promotes competition and innovation by allowing third-party providers (TPPs) to access bank account data securely.
- Transparency in payment services: The PSR ensures transparency, requiring providers to clearly inform customers about fees, exchange rates, and transaction details before and after a payment is made.
- Refund rights: Under the PSR, customers are entitled to a refund for unauthorised transactions if reported promptly (within 13 months in the EU/UK). If a transaction amount exceeds the customer’s expectations – e.g. variable billing – the customer can also request a refund.
- Security of payment transactions: The PSR requires PSPs to implement measures to ensure the confidentiality, integrity, and availability of payment data.
- Prohibition of surcharges: With a few exceptions applicable to certain payment methods, the PSR prevents merchants from imposing additional fees on card payments for consumer cards in the EU or UK.
- User rights and dispute resolution: The PSR gives the user the right to information on transaction status and service terms and to withdraw consent for recurring payments.
- Licensing and authorisation of PSPs: Under the PSR, PSPs must obtain registration authorisation from regulatory authorities, such as the FCA in the UK and national regulators in the EU.
- Incident reporting: PSPs must report significant operational or security incidents – e.g. data breaches – to regulators promptly.
- Enhanced cross-border payment protections: The PSR aligns rules across the EU/UK to make cross-border payments more seamless and cost-effective. It also ensures payment tracking, faster settlements, and harmonised user protections.
Together, these key provisions create a more secure and competitive payments ecosystem.
PSR: EU (and UK) applications
The PSR operates as part of the PSD3 regulatory framework in the EU. The UK is not bound by PSD3 or PSR, but the UK regulator, the PSR, may be influenced by the new EU regulations.
PSR in the EU
In the EU, the PSR is rooted in the latest update to PSD2, PSD3, which aims to standardise payment systems across member states, enhance security, and promote innovation.
Key features of the PSR within the EU:
- Strong Customer Authentication (SCA) for secure transactions
- Open Banking mandates via APIs for Account Information Services (AIS) and Payment Initiation Services (PIS)
- Consumer protections, such as refund rights and dispute resolution mechanisms
The PSR applies uniformly across the EU and focuses heavily on cross-border payment consistency under the Single Euro Payments Area (SEPA).
PSR in the UK
In the UK, PSR stands for Payment Systems Regulator, the governmental body that oversees payments. The Payment Systems Regulator is aligned with the EU’s Payment Services Regulation in so much as it was influenced by the European Payment Services Directives, which were incorporated into UK law through the PSR in 2017 after the UK left the European Union.
Key features of the UK’s Payment Systems Regulator:
- UK-specific focus on fostering competition and innovation in the payments market
- Retains Open Banking under the Open Banking Implementation Entity (OBIE), an initiative driven by the UK’s Competition and Markets Authority (CMA)
- Active regulation of emerging payment trends, such as Buy Now, Pay Later (BNPL) schemes
The UK PSR maintains payment systems operating within the UK and oversees provisions like Strong Customer Authentication and Open Banking. Post-Brexit, the UK is no longer required to align with EU rules, but the UK PSR framework largely mirrors that of Europe.
Want to know more about safe and secure instant payments?
If you want to learn more about PSD3 and PSR, please check out our PSD3 explainer page and download our latest guide.
On the other hand, if you would like to know more about safe and secure instant payments powered by open banking, please get in touch with one of our payment experts today.
