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EU Commission Proposes Digital Revolution for Financial Sector and Payment Services
Empowering Consumers and Shaping a Digital Financial Future
The European Commission has presented a proposal aimed at modernizing the financial sector and enhancing payment services in the digital era. The package introduces reforms to improve consumer protection, foster healthy competition, and facilitate secure data sharing. Amid the surge in electronic payments, new players, and emerging fraud risks, the reforms seek to adapt the EU's financial landscape to the ongoing digital transformation. The proposal comprises two sets of measures: revising the Payment Services Directive to combat fraud and enhance consumer rights, and establishing a legislative framework for secure financial data access. These reforms aim to empower consumers while maintaining trust and security in the digital financial ecosystem.
Brussels, 17 October 2023 - 7 MINUTES READ
In a bold move aimed at transforming the financial sector and payment services, the European Commission unveiled a groundbreaking proposal today. The comprehensive reforms are geared toward ushering in the digital age, boosting consumer protection, enhancing competition, and ensuring secure data sharing. This initiative is set to empower consumers with access to a wider array of cost-effective financial products and services, all while safeguarding their interests.
Shifting Payment Landscape
The global realm of payment services has witnessed a seismic shift in recent times, with electronic payments reaching an astounding €240 trillion in 2021, up from €184.2 trillion in 2017. The unprecedented surge in digital transactions has been expedited by the COVID-19 pandemic, accelerating the transition to a cashless economy. Riding this wave, new players leveraging digital technologies have entered the scene, particularly those providing 'open banking' services that securely exchange financial data between traditional banks and fintech firms. However, this transformation hasn't come without its challenges, as sophisticated fraud schemes have surfaced, underscoring the necessity for comprehensive reforms.
Shifting Payment Landscape
The global realm of payment services has witnessed a seismic shift in recent times, with electronic payments reaching an astounding €240 trillion in 2021, up from €184.2 trillion in 2017. The unprecedented surge in digital transactions has been expedited by the COVID-19 pandemic, accelerating the transition to a cashless economy. Riding this wave, new players leveraging digital technologies have entered the scene, particularly those providing 'open banking' services that securely exchange financial data between traditional banks and fintech firms. However, this transformation hasn't come without its challenges, as sophisticated fraud schemes have surfaced, underscoring the necessity for comprehensive reforms.
The European Commission's Proposal for Digital Payments and Financial Services
In response to the evolving financial landscape, the European Commission's proposal encompasses two pivotal aspects to ensure the EU's financial sector remains agile in the digital age:
1. Revamping the Payment Services Directive (PSD2): The proposal aims to modernize the existing Payment Services Directive (PSD2), giving rise to the PSD3, and simultaneously introducing a Payment Services Regulation (PSR). This comprehensive package addresses various dimensions, including:
- Strengthening the fight against payment fraud through enhanced information sharing between payment service providers.
- Bolstering customer authentication rules and extending consumer refund rights in the event of fraud.
- Enriching consumer rights, enhancing transparency on account statements, and shedding light on ATM charges.
- Leveling the playing field between traditional banks and non-bank payment service providers.
- Granting non-bank payment service providers controlled access to all EU payment systems under specific safeguards.
- Facilitating open banking initiatives to support innovation.
- Enhancing access to cash services.
- Reinforcing harmonization, enforcement, and penalties to ensure a secure and competitive landscape.
1. Revamping the Payment Services Directive (PSD2): The proposal aims to modernize the existing Payment Services Directive (PSD2), giving rise to the PSD3, and simultaneously introducing a Payment Services Regulation (PSR). This comprehensive package addresses various dimensions, including:
- Strengthening the fight against payment fraud through enhanced information sharing between payment service providers.
- Bolstering customer authentication rules and extending consumer refund rights in the event of fraud.
- Enriching consumer rights, enhancing transparency on account statements, and shedding light on ATM charges.
- Leveling the playing field between traditional banks and non-bank payment service providers.
- Granting non-bank payment service providers controlled access to all EU payment systems under specific safeguards.
- Facilitating open banking initiatives to support innovation.
- Enhancing access to cash services.
- Reinforcing harmonization, enforcement, and penalties to ensure a secure and competitive landscape.
2. Legislative Framework for Financial Data Access: The proposal sets out a comprehensive framework for managing customer data sharing beyond payment accounts. Key aspects include:
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- Possibility but no obligation for customers to share their data with data users (e.g. financial institutions or fintech firms) in secure machine-readable format to receive new, cheaper and better data-driven financial and information products and
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Source: © European Union, 1995-2023
Source: © European Union, 1995-2023