The split into the Payment Services Directive 3 (PSD3) and the Payment Services Regulation (PSR) addresses a fundamental issue of PSD2: regulatory fragmentation caused by divergent national implementations. While PSD2, as a directive, granted Member States wide interpretative leeway, this led to competitive distortions and regulatory arbitrage – the infamous "forum shopping".
The EU’s strategy behind this: Operational business rules intended to apply uniformly across the EU are being transferred into a directly applicable regulation (PSR). Institutional provisions, which traditionally remain within national competence, continue to reside in a flexible directive (PSD3).
Regulation vs. Directive: The Legal Paradigm Shift
The fundamental difference between the two legal instruments lies in their practical application:
| Aspect |
Regulation |
Directive |
| Legal Effect |
Directly applicable in all 27 EU Member States |
Requires national transposition |
| Degree of Harmonisation |
Maximum uniformity – minimal room for interpretation |
Framework provisions with national discretion |
| Implementation Timeline |
Immediate effect upon entry into force |
Transposition period for Member States (18–24 months) |
PSR: The Core of Operational Payments Regulation
The Payment Services Regulation becomes the central framework for operational payment activities. It covers all business-critical areas that have so far been subject to divergent national interpretations:
Key Provisions of the PSR
- Conduct of Business and Operations: Uniform standards for all payment service providers across the EU
- Consumer Protection: Stricter liability rules in cases of fraud and enhanced customer authentication
- Open Banking 2.0: Improved API standards and harmonised competition rules for account information and payment initiation services
- Fraud Prevention: Extended security requirements, immediate reporting obligations, and industry-wide data analysis
- Payee Name-IBAN Matching: EU-wide harmonisation of the verification already mandatory in Germany from 9 October 2025
Strategic Advantage: With the PSR, there is no longer a need to monitor 27 different national transpositions. A single EU-wide compliance framework eliminates regulatory arbitrage and ensures a level playing field.
PSD3: Focus on Institutional Regulation
The Payment Services Directive 3 deliberately retains the form of a directive, as it regulates areas traditionally within national competence:
Key Focus Areas of PSD3
- Licensing and Supervision: Harmonised but nationally implemented rules for payment institutions (PIs) and e-money institutions (EMIs)
- Institutional Requirements: Capital requirements, governance structures, and internal controls
- Integration of E-Money Regulation: Repeal of the separate e-money directive and alignment of regulatory regimes
- Passporting Rights: Expanded cross-border service provision within the EU
Why does it remain a directive? Licensing and supervision of financial institutions are a historically entrenched sovereign competence of Member States. A fully centralised EU licence for payment institutions would create constitutional barriers and undermine established national supervisory structures.
