European payments and digital finance:  Harmonisation, clarification & trust

On 28 June 2023, the European Commission published two legislative proposals concerning the reform of PSD2 and access to financial data. In December 2023, a compromise text was finally adopted for instant payments, the system on which the European Payments Initiative (EPI) is based. 

Reform of PSD2 

The reform involves two texts: a proposal for a directive (2022/0209) on payment and electronic money services (PSD3) and a proposal for a regulation (2023/0210) on payment services (RSP1), expected to be adopted in 2024. 

PSD3 sets rules for the authorisation and supervision of payment and electronic money institutions. RSP1 establishes obligations for payment service providers (PSP) regarding payments. It clarifies PSD2 and introduces new obligations with the aim of improving open banking operations and combating fraud.

Access to Financial Data 

Proposal for Regulation 2023/0205 on a framework for access to financial data (Financial Data Access – FIDA) is the legislative basis for implementing open finance. This system will allow consumers and businesses to authorise third parties to access their financial information held by institutions. Data holders could request reasonable compensation for making the data accessible to users.

Instant Payment 

Proposal for Regulation 2022/0341 has been approved in committee and is expected to be voted in 2024. It aims to make instant payments in euros accessible to all citizens and businesses holding a bank account in the European Economic Area. It imposes various requirements on financial institutions, including speed of execution, accessibility, implementation of a robust and up-to-date fraud detection system, and the obligation for providers to verify that the payer's provided bank account number (IBAN) and name match to warn of any potential errors or fraud before payment is made. This provision is echoed in RSP1 for all other payments. 

Based on instant payment, the EPI has entered a testing phase.

The EPI 

In 2022, the EPI, launched in 2020 as an integration initiative by the European Central Bank, with 16 major European banks as shareholders, and which aims to compete with Visa and Mastercard, shifted its focus to create a new digital wallet (Wero) and a unified account-to-account solution based on the instant payment system. This solution aims to become the standard for European consumers and merchants, offering security, transparency, immediacy, and ease of use. Entering the test phase at the end of 2023, the commercial launch is planned for 2024 in France, Belgium and Germany. 

In 2023, digital finance was also the subject of various developments with the regulation of crypto-assets and the initiation of tests for the digital Euro.

Crypto-Assets

The European Regulation on Crypto-Assets Markets (Markets in Crypto-Assets, or MiCA) of 09 June 2023, will come into effect on 30 December 2024, except for provisions on stablecoins, which will apply from 30 June 2026. 

From 30 December 2024, a harmonised European framework will replace national frameworks to govern the public offering and admission to trading of tokens, the provision of services on crypto-assets by providers, and the prevention of market abuse on crypto-assets. The Regulation refers to crypto-assets, while French law refers to digital assets. Thus, providers of services on digital assets (PSAN) become providers of services on crypto-assets (PSCA). 

From this date, PSCA will be subject to mandatory approval by the French regulator (the Autorité des Marchés Financiers), allowing them to provide their services throughout the European Union, with requirements similar to the optional approval under the French regime. PSAN already registered or approved in France can continue to provide their services until the end of the transitional period in 2026.

Digital Euro 

On 28 June 2023, the European Commission published a proposal for Regulation 2023/0212, aiming to define the conditions for using the digital Euro, a digital form of cash issued by the central bank and accessible to everyone in the eurozone. It will be a new means of payment held in an electronic wallet placed with a bank or an authorised intermediary. 

Since November 2023, the Eurosystem has entered a testing phase. The Governing Council will then decide whether to issue a digital Euro. If approved, circulation is scheduled for 2027.

Conclusion 

The year 2023 marks a significant milestone in the construction of a European payments market. The goals of these different texts are numerous but share a common purpose: the European Union's constant desire to encourage innovation, promote competition between banking and non-banking actors, protect consumers, and combat fraud. The law struggles to keep up with technology, but these new texts have the merit of clarifying market actors' obligations and harmonising concepts. A clear legal framework is a guarantee of trust for consumers, regulators, and stakeholders. 

In 2024, these texts are expected to be voted on, and the testing phases completed, continuing the profound transformation initiated a few years ago in payments and anticipating open finance, the future of open banking. These new regulations will have a significant impact on the daily use of payment methods by both individuals and businesses.