Next, Voices from the Future | Evolving payment systems, a boost for technological innovation

Payment systems are tools or methodologies used to transfer money from one party to another. This transfer can take various forms: cash, checks, bank transfers, credit and debit cards, all the way to today's electronic and digital payments. Since the earliest forms of barter, payment systems have evolved considerably from metal coins to complex digital systems that allow instant transactions globally. Technological innovation has played a crucial role in this evolution, pushing for greater efficiency, security and accessibility.

In recent decades, technology has radically transformed the way we make payments: credit and debit cards have kick-started this evolution, providing greater convenience and security in transactions, and also mobile and digital payments that offer unprecedented flexibility. Payment cards, introduced in the mid-20th century, represented a watershed because they enabled consumers to make purchases without having cash in their wallets or by simplifying access to funds in their checking accounts. Over the years, these cards have become increasingly secure thanks to technologies such as EMV chip and tokenization.

With the advent of the Internet and smartphones, digital payments have seen exponential growth. Digital wallets such as PayPal, Apple Pay, Google Wallet and Samsung Pay have revolutionized the way people transfer money, offering fast and secure transactions with just a few touches on the screen. These systems leverage advanced technologies such as encryption and two-factor authentication to ensure secure transactions. And it is precisely by talking about cryptography that we cannot fail to mention what has been introduced by cryptocurrencies and blockchain as a new dimension in payment systems. Bitcoin and Ethereum offer a decentralized form of currency that can be transferred without the intermediation of banks or other financial institutions, as we have already discussed in detail in the past. The real revolution lies, then, not in the technology as much as in the way in which the exchange of value takes place, holding increasingly to a peer-to-peer approach. 

Finally, it is impossible not to turn our gaze to the most recent developments brought by artificial intelligence. This same technology and machine learning models could be used to detect and prevent fraud more effectively. Augmented reality (AR) and virtual reality (VR) will create new shopping experiences, integrating digital payments into virtual environments and continuing the shift toward an increasingly cashless society. 

Just speaking of cashless, Italy has seen double-digit growth year after year toward digital payments, certainly assisted by the pandemic, but still far behind other European countries. Open Banking, APIs, DLT and AI contribute to a continuous evolutionary push in the financial system. In order to be able to adapt not only to market demands but also to the opportunities offered by new technologies, the European Parliament has decided to evolve PSD2 legislation by introducing a third Payment Services Directive. 

PSD3 will focus on several aspects, focusing on:

• Strong Customer Authentication (SCA), ensuring greater security, a refinement of fraud control and consumer liability rules;
• Regulation of stablecoin payments, thereby introducing a DLT and Digital Asset component to the roster of digital payments; 
• Continued development of Open Banking, ensuring more and better offerings towards the end customer;
• Improved access to cash, thus not eliminating the most traditional form of payment, but ensuring its better access and use.

Although an important first step was taken in the European Parliament on April 23, 2024 with the adoption of the amendments on PSD3, some time will still have to pass for these to become effective. The negotiation enters the phase of involving the EU, European Commission and European Parliament, so as to better outline and define the guidelines for the next steps.