Opportunities for payments arising from the new regulations

Philipp Königs, Head of Transaction Automation, in this year’s Business@EBAday publication.

In recent years, the European Union has been at the forefront of shaping regulatory frameworks to govern the rapidly evolving payment industry. With the advent of digitalization and fintech innovation, the landscape of financial transactions has undergone significant transformation, prompting policymakers to enact new regulations and directives to ensure security, consumer protection, and market integrity. From PSD2 to GDPR, the EU has implemented a plethora of measures aimed at modernizing payment systems and fostering competition while safeguarding the interests of consumers and businesses alike. Against this backdrop, navigating the intricate web of regulatory requirements has become paramount for stakeholders in the payment ecosystem, presenting both challenges and opportunities for industry players seeking to thrive in this dynamic environment. 

Enhancing Security and Trust: Regulations like GDPR have heightened the standards for data protection and privacy, instilling greater trust among consumers in digital payment systems. By prioritizing the security and confidentiality of personal information, these regulations have paved the way for the development of more robust and resilient data platforms. This encourages banks to embark on new customer journeys such as digital onboarding, digital signatures, e-invoicing etc. 

Encouraging Technological Advancements: Compliance with regulatory requirements often necessitates the adoption of new technologies and methodologies. For instance, meeting the Strong Customer Authentication (SCA) requirements under PSD2 has prompted the implementation of advanced authentication methods such as biometrics and tokenization. These technological advancements not only enhance security but also drive innovation in user experience and payment efficiency. While these systems have been put in place, they can become additional revenue streams for banks, such as identity as a service. 

Open Banking Initiatives: The rise of Open Banking, propelled by regulations such as PSD2, is revolutionizing the way financial data is accessed and shared. This trend encourages banks to open up their data to third-party providers, fostering innovation in payment services and driving competition in the market. Now – PSD3 and PSR aims to provide a regulatory framework that nurtures innovation while addressing the evolving market dynamics. Promoting Innovation and Growth: PSD3/PSR aims to overcome the fragmented approaches adopted by different EU member states by creating a unified regulatory framework. The new regulations will support the EU’s Retail Payment Strategy’s goal of facilitating cheaper international payments, adopting global messaging standards, and fostering connections between payment systems in various jurisdictions frameworks provide a controlled environment for testing new payment technologies and business models, enabling regulators to stay abreast of emerging trends and shape regulations accordingly. 

Cross-Border Payments Regulation: Efforts to harmonize regulations and improve cross-border payment efficiency are gaining traction globally. Initiatives like the Single Euro Payments Area (SEPA) in Europe and the Faster Payments Scheme in the UK aim to standardize payment processes and reduce settlement times, facilitating smoother cross-border transactions for businesses and consumers alike. 

Regulatory Sandboxes and Innovation Hubs: Regulatory authorities are increasingly establishing sandboxes and innovation hubs to foster experimentation and innovation in the payment sector. These regulatory frameworks provide a controlled environment for testing new payment technologies and business models, enabling regulators to stay abreast of emerging trends and shape regulations accordingly. 

Real-Time Payments Regulation: The demand for real-time payment solutions is driving regulatory efforts to facilitate faster and more efficient payment processing. Regulatory bodies are exploring ways to standardize real-time payment infrastructures and ensure interoperability between different payment systems, enhancing the speed and convenience of payment transactions.