target audience: TECH BUYER Publication date: Mar 2024 - Document type: Tech Buyer Presentation - Doc Document number: # EUR151922624
The Embedded Finance Revolution and the Role of PSD3: Will PSD3 Boost Embedded Finance?
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Abstract
This IDC Tech Buyer Presentation looks at the revision of the EU's Payment Services Directive (PSD3) and assesses how it can facilitate the uptake of embedded finance. It identifies how SD3 version addresses some pitfalls of PSD2, as identified by the European Commission in its regulatory impact evaluation review, and analyzes the current situation in embedded finance. This presentation was shown at Finovate Europe on February 28, 2024, in London within the analyst session "How Financial Services Have Been Changed Forever & Why Banks Need New Business Models." Finovate represents one of the most important fintech events in Europe.
PSD and PSD2 opened up the banking space, helping introduce the revolutionary concept that payment services could be offered also by non-banks. This has led to more choices for customers and driven innovation due to the increased competition, especially from emerging players that had identified smart ways to leverage new technologies. The market has moved forward, proposing new business models, creating synergies through partnerships and collaboration among players, and delivering products and service innovation to payment service users. PSD3 acknowledges that the traditional payment value chain has largely changed, and that it can now be seen more as a series of microservices that can be offered by multiple players that combine their offerings to compose valuable services for their common customers.
PSD3's first objective is to align with market evolution and address hurdles players faced in deploying embedded finance offerings. The European Commission undertook an innovative approach in proposing the new legislative framework, submitting a joint set of legislative proposals: namely, PSD3 and the Payment Service Regulation (PSR). It also leveraged two prior regulations: the General Data Protection Regulation (GDPR), applicable since May 25, 2018 (Regulation (EU) 2016/679), and the Digital Operational Resilience Act (DORA), which entered into force on January 16, 2023, and will apply as of January 17, 2025. (Regulation (EU) 2022/2554).
Market players have recently undertaken initiatives to combine their strengths and propose embedded finance offerings. Thanks to PSD3, ecosystem-driven initiatives will be encouraged, and more embedded finance proposals will deliver value to customers along their journey, enhancing customer centricity and boosting the European payment industry's competitive positioning.