The next fintech revolution: What to expect from PSD3

Podcast Ep 190: The transformations enabled in fintech and banking by PSD2 will be overshadowed by its next iteration, says Lawrence Vesey from Sia Partners.

If you think the wave of fintech and banking innovation that followed in the wake of the second Payment Services Directive (PSD2) directive in Europe was ground-breaking, the next iteration PSD3 promises even more.

In our latest ThinkBusiness Podcast, Lawrence Vesey from Sia Partners talks about the potential for game-changing developments and nurturing market competition and innovation in the wake of PSD3.

“There will be continued opportunities for entrepreneurs around providing an understanding of what you are spending your money on, what your carbon footprint is in relation to that spend”

Since the introduction of the Payment Services Directive there has been a significant transformation of the European payment services market. Many of the revolutions we’ve seen in terms of next generation banking services, products and apps, as well as mass evolution in the traditional banking sector including Strong Customer Authentication (SCA) and Know Your Customer (KYC) all have their roots in the directive.

A new playing field for financial services


In its last iteration PSD2 ensured a level playing field between existing and new providers of card, internet and mobile payments.

PSD3 aims to protect consumers’ rights and personal information while improving competition in the payments industry, including a new Payment Services Regulation (PSR) to include consumer protection.

PSD3 will provide rules on the efficiency and security of electronic/digital payments and financial services in the EU. It aims to improve competition and innovation in the financial industry. It will also set out more extensive SCA regulations and stricter rules on access to payment systems and account information.

Vesey talks about the outlook of the financial industry over the next 6-12 months and how these new proposals will impact the European payments market. 

Currently, Lawrence spearheads the Business & Digital Transformation and Public Sector Practice at Sia Partners across Ireland and the UK, bringing a wealth of experience in orchestrating substantial business and technology transformation initiatives across diverse industries. 

“Over the last 20 years, the application of technology has been transformational across financial services and in banking in particular,” Vesey said. “Our relationship with the bank branch is completely different now than it was 10 years ago or even 20 or 25 years ago.

“The evolution of PSD going back to 2007 was very much focused around the word of payments and credit transfers and direct debits.

“It’s next evolution [PSD2] was around putting standards on card, internet and mobile payments. A big part of PSD2 was to stimulate competition and innovation and also to encourage new entrants to come to market, but also bring more security for online payments. A big part of PSD2 was also about opening up to third party providers over and above your traditional banks and that they could get a licence to be able to operate in the payments area, which pretty much opened up the world of fintech.

“So PSD1 and PSD2 brought about a lot of standardisation but also there were a lot of learnings coming out of it.”

He said the last 10 years have also been defined by major changes in the areas of cybersecurity, the onset of GDPR and more.

“Many of the overall objectives for PSD3 will be around managing fraud and mitigating against it.”

Ultimately, what PSD3 will bring with it will be greater certainty and confidence around digital transactions with less fraud and a more resilient payments infrastructure.

“Banks will have to do a lot of the heavy lifting and the implication is going to be more behind the scenes for banks and payment services providers.”

Spending patterns and your carbon footprint

Vesey pointed out that the use of cash in countries like Ireland is declining. “It’s probably at around 15% of what it was five years ago and continues to decline.”

Looking to the future, he predicted: “I think there will be continued new opportunities around fintech providers but also opportunities for applying new tools like machine learning and artificial intelligence to some of the back-end side of processing payments I terms of fraud.

“Banks and other payment providers have developed increasingly sophisticated tools based on AI that will identify unusual spending patterns and attempts at fraud.

“There will be continued opportunities for entrepreneurs around providing an understanding of what you are spending your money on, what your carbon footprint is in relation to that spend. So giving insights around if you can change your spending habits you can reduce your carbon footprint. And three or four years ago, nobody was thinking about that. And that’s going to be facilitated by this type of framework.”

John Kennedy
Award-winning editor John Kennedy is one of Ireland's most experienced business and technology journalists.