Opinion Digital Banking

PSD3 will bring fairness to payments

New payments regulation offers the chance for a huge new wave of innovative services, writes Cian O’Dowd, chief operating officer and co-founder of Atoa

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The UK has been the ideal hub to nurture fintech startups in recent years. It has stronger mandates and connections to banks, which allows new fintechs to implement APIs more quickly compared to regions like Europe and the US.

As a result, it has been home to some of fintech’s biggest success stories and innovations, like open banking. 

Then comes the latest refresh of the Payment Services Derivative (PSD3), introduced by the European Union.

The payments industry is rightly buzzed by the huge window of opportunity it creates. As digital payment methods soar in popularity - and on a global scale - the new rules open the door to much-needed innovation in payments services across the EU.

What’s happening to push open banking in Europe is a huge step in the right direction, and the UK will not sit still for long and risk losing its competitive edge. In order to plan our next move, we must first dive into the current payment landscape in the UK. 

Why, in a world of open banking and payments innovation, are we still addicted to card payments? It’s a market dominated by payments giants like Visa and Mastercard charging restaurants and hairdressers anything from 1.5 per cent to 2 per cent per transaction.

Accepting card payments is costly, slow and complex. Small businesses especially are feeling the squeeze and have rightly had enough of exorbitant and unfair transaction fees. 

If the UK is truly a global leader in payments, we must bring fairness to the payments market, which ultimately means challenging the dominance of card networks. PSD3 generating open banking momentum in the EU may well be the spark the UK needs to make that change a reality. 

The true cost of cards 

There has been little-to-no significant innovation since Visa and Mastercard first introduced premium credit card products in the 80s. 

They are still operating using largely the same infrastructure, unnecessarily involving multiple intermediaries to process a single payment, and inexplicably charging retailers for their service. 

So why are they charging so much more for the same product? The recently launched ‘Axe the Card Tax’ campaign by the Coalition for a Digital Economy (COADEC) shows that in the UK, processing fees for cards have risen up to 44 per cent since 2016. 

What’s more, Visa and Mastercard have a 99 per cent market share, representing 80 per cent of all retail transactions. In short, nearly all merchants across the UK are being hit with these unjustifiable fees.

If the costs weren’t enough of a sting, the network involved in card schemes also means businesses could be waiting multiple days for a payment to come through while each intermediary processes it. 

This is particularly tough for small businesses, which contribute to 99 per cent of the UK economy.

These merchants are facing significant disruption to their cash flow, particularly at a time when the economic conditions mean revenue is so important. 

Many in the industry have heard first-hand the frustrations and pressures felt by small and mid-sized firms. Business owners have had enough of paying a premium for the privilege of accepting card payments, and are calling out for an alternative. 

Opening the door for open banking

Thankfully, open banking is already a positive force for change. It is introducing fairer, faster, and cheaper methods of payment which businesses are starting to favour. 

With support from regulatory bodies like the Open Banking Implementation Entity (OBIE) and the Joint Regulatory Oversight Committee (JROC), adoption in the UK is progressing at pace. 

This has paved the way for new methods powered by open banking like account-to-account (A2A) payments initiated by third-party providers, where funds are moved directly from one bank account to another on behalf of the payer. 

By moving money in this way, there are no intermediaries, and therefore significantly reduced transaction fees charged to merchants. 

These payments are also processed in a matter of seconds, as opposed to days. It’s no wonder we’re already seeing huge interest from merchants, especially among smaller businesses.  

The adoption of open banking through methods like A2A payments has seen huge success across the UK and European regions so far, facilitated by the regulatory environment created by PSD2. 

This leaves a solid foundation on which PSD3 can be developed, which promises to remove the barriers to providing open banking services and granting users more control over their payment data. 

Additionally, the new regulation will also look to level the playing field between banks and neobanks, allowing non-bank payment service providers safe access to all EU payment systems. The potential for more innovative services as a result of this rollout is huge. 

Open banking - fuelled by the arrival of PSD3 - will inject much-needed competition to the global fintech market. Fintechs can grow on the back of clear, ongoing issues with cards.

This regulatory boost will also encourage the improvement of payment experiences for users - another crucial factor to be addressed if we want to make open banking the preferred way to pay.

Fintech has always been shorthand for disruption and innovation. While it is hard to predict exactly what the arrival of PSD3 will bring, the potential for open banking adoption is thrilling.


Because restoring fairness to payments by ending the duopoly of Visa and Mastercard in the EU, and subsequently other markets, could finally be in sight. 

The views and opinions expressed are not necessarily those of AltFi.

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