The Revised Payments Services Directive (PSD2) and Its Impact on Fraud in the European Union

The revised Payments Services Directive (PSD2), introduced to promote open banking within the European Union, aimed not only to provide consumers with greater protections but also to streamline digital payments. Despite its largely successful implementation, ongoing fraud challenges have continued to result in significant financial losses.

According to a joint study by the European Banking Authority (EBA) and the European Central Bank (ECB), while the frequency of fraud across the EU remained steady from 2023 to 2024, the aggregate cost of fraudulent activities surged from €3.5 billion in 2023 to €4.2 billion in 2024.

Even with the robust adoption of Strong Customer Authentication (SCA) rules under PSD2 since 2020, transactions that adhered to these protocols were generally less prone to fraud than those which did not, particularly when it came to card payments. However, this success has been tempered by an ongoing evolution in fraudulent tactics.

Adapting Fraud Strategies

The ECB and EBA noted that criminal activity has adapted, targeting transactions outside SCA coverage or using social engineering techniques to deceive consumers. For instance, criminals might pose as legitimate entities via phishing emails from major retailers or fake texts from government agencies demanding urgent payments.

Companies and governments have increased their fraud defense measures in response, but this has led cybercriminals to focus more on direct consumer scams. These include fraudulent communications designed to trick users into sending money, as well as cases where consumers are unknowingly used as mules to move illicit funds.

Addressing the Evolving Threat Landscape

The persistence of fraud despite better regulatory measures and defenses underscores the need for a new approach. As cybercriminals adapt their tactics, organizations must innovate and think creatively to combat these threats effectively. This may involve breaking traditional rules and adopting unorthodox strategies.

The ECB/EBA’s findings reveal that while SCA protocols have significantly reduced fraud rates since 2020, the rapid evolution of criminal tactics means that continued vigilance and adaptation are necessary to keep pace with these evolving challenges.