PSD3
What Is PSD3? Definition and How It Works
Definition
PSD3 (the Third Payment Services Directive) is the European Union's legislative update to PSD2, agreed alongside the Payment Services Regulation (PSR) and expected to be applicable across EU member states by 2028. PSD3 and PSR introduce harmonised open banking standards, strengthened fraud liability and reimbursement rules, improved IBAN-name verification requirements, and clearer frameworks for non-bank payment service providers.
How it works
PSD3 and PSR operate as a package. PSD3 is a directive, it requires transposition into national law by each EU member state, while PSR is a regulation that applies directly and uniformly across the EU without national transposition. The split is designed to address one of PSD2's primary failings: fragmented national implementation that created inconsistent open banking experiences across the single market.
The provisional political agreement between the European Parliament and Council was reached in November 2025. Publication in the Official Journal is expected in 2026, with a transition period before applicability is targeted for Q2/Q3 2028.
Key changes under PSD3/PSR include: harmonised API performance standards to reduce the technical barriers that have hampered PISP access under PSD2; a mandatory Verification of Payee (VoP) / IBAN-name verification scheme to reduce Authorised Push Payment (APP) fraud; strengthened consumer reimbursement rights for fraud victims; enhanced provisions preventing banks from discriminating against PISPs; and updated licensing frameworks that streamline authorisation for electronic money institutions and payment institutions.
The separate Financial Data Access (FIDA) Regulation, not PSD3, addresses open finance: the extension of data sharing obligations beyond payment accounts to savings, investment, pension, and insurance products, establishing a framework for financial data access that goes beyond PSD2's narrow payment account scope.
Why it matters
PSD2, while transformative in concept, produced fragmented results in practice. Bank API quality varied enormously by market; some banks implemented interfaces that were technically compliant but practically unusable for PISPs. Exemption application inconsistency across national regulators created compliance uncertainty. Consumer protection against APP fraud was inadequate. PSD3/PSR is the regulatory response to these practical failures.
For merchants, PSD3's most immediate commercial impact is improved open banking payment reliability and the expansion of Pay by Bank availability across more markets. Harmonised APIs and stronger PISP access rights should increase A2A payment conversion rates and reduce failure rates from bank API outages or degraded performance.
Mandatory IBAN-name verification has significant fraud prevention implications. APP fraud, where payers are tricked into sending money to fraudulent accounts, exploits the absence of payee verification. CoP matches the IBAN entered at payment initiation against the account holder's name, alerting payers to mismatches before payment executes.
With PXP
PXP tracks PSD3 and PSR developments so its acceptance, authentication, and open banking capabilities stay aligned as the rules take effect. Talk to our team about how PXP can support your readiness for evolving payment regulation.
Frequently asked questions
What is the difference between PSD3 and PSD2?
PSD2, introduced in 2018, established open banking by requiring banks to provide API access to licensed third parties for account data and payment initiation, and introduced Strong Customer Authentication. PSD3 updates and strengthens this framework: improving API quality standards, harmonising rules more directly through a directly applicable Regulation (PSR), strengthening fraud protections, requiring IBAN-name verification, and extending data-sharing principles to broader financial products beyond payments.
When does PSD3 come into effect?
PSD3 and PSR reached provisional political agreement in November 2025 and are expected to be published in 2026. Given the transition periods involved, applicability is targeted for 2028. The final timeline depends on the formal legislative process and national implementation schedules for the directive components.
What is the Payment Services Regulation (PSR) and how does it differ from PSD3?
PSD3 is a directive that sets minimum standards and requires national transposition, EU member states must pass their own laws implementing PSD3's requirements. PSR is a regulation that applies directly across the EU without national transposition, creating a single rulebook for conduct-of-business rules for payment services. Moving key conduct rules from a directive to a regulation is designed to eliminate the inconsistencies that arose from divergent national PSD2 implementations.
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