Zeb Winzenried, Senior Director, Testing Services at Applause
The European payments ecosystem is entering a new phase of regulatory change. Two major initiatives – the EU’s Instant Payments Regulation (IPR) and the proposed Payment Services Directive 3 (PSD3) – are set to reshape how money moves across the continent.
The IPR aims to make real-time transfers the standard across the European Union, while PSD3 seeks to modernise the framework established by PSD2 in 2016. Together, these reforms promise faster payments, stronger consumer protections, and new opportunities for fintech innovation.
However, they also introduce new technical and operational challenges for payment service providers (PSPs), fintechs and businesses that depend on digital payment infrastructure. Organizations will therefore need to rethink how they test and secure their payment systems.
Instant payments become the norm
The rollout of the IPR marks a significant shift in European payments. While instant transfers exist in many markets, they are often optional, limited to specific hours, or subject to fees. The new regulation removes these barriers.
PSPs in the eurozone must be able to receive instant euro payments within 10 seconds, 24 hours a day, seven days a week. They must also be able to send instant payments and implement verification of payee (VoP) services to prevent fraud. Beyond the eurozone, full IPR compliance is required by 2027.
For businesses, the benefits are substantial. Real-time payments improve liquidity by allowing funds to move immediately between accounts. Supporting always-on payment processing poses technical challenges, however, especially for institutions still reliant on legacy infrastructure.
PSD3 and the next phase of open banking
While IPR focuses on real-time payment speed, PSD3 – alongside the new Payments Services Regulation (PSR) – establishes the framework for security, innovation, and interoperability across the European payments ecosystem. PSD3 mainly focuses on licensing and supervising payment institutions, while the PSR adds new requirements on top of the existing PSD2 framework.
Expected to be finalized later this year, the directive builds on PSD2 to introduce standardized APIs and clearer data-sharing rules, enabling fintechs to integrate services directly with banking infrastructure.
Together PSD3 and the PSR also strengthen fraud prevention, consumer protection, and Strong Customer Authentication (SCA), while also imposing stricter liability provisions. Their open banking enhancements facilitate cross-organizational innovation and embedded finance, allowing businesses to integrate payments and financial services directly into digital platforms.
By combining faster payments with stronger security and more interoperable systems, this evolving framework goes beyond mere regulatory compliance and unlocks new opportunities for real-time value-added services.
Testing challenges in a real-time ecosystem
Implementing these reforms presents practical challenges. Instant payments condense the entire transaction lifecycle into seconds, leaving practically zero margin for error in authentication, fraud detection, or compliance checks. Open banking adds complexity by requiring interaction with a broader ecosystem of banks, fintechs, and third-party providers.
Testing must be more comprehensive, validating the entire payment lifecycle from initiation to settlement. This requires seamless coordination across multiple systems and participants, including gateways, clearing systems, and third-party providers. Interoperability testing is essential to maintain reliable real-time operation.
API testing is also critical. Financial institutions must ensure APIs support secure real-time data exchange and comply with emerging standards. Cross-border testing is another priority, as instant payments must operate consistently across EU markets.
Strengthening security and fraud prevention
The IPR and PSD3 regulations both aim to enhance security and reduce fraud across the payments ecosystem, introducing complementary requirements that organizations must address in tandem. Verification of payee services must confirm that recipient names match associated IBANs before authorization. Testing must cover complex scenarios such as close name matches, joint accounts, and trading names, while avoiding delays. This is important, as poorly calibrated checks can introduce friction, with false mismatches or slow responses leading to failed payments and a negative user experience at the point of transaction.
Authentication flows, including multi-factor methods, exemptions and accessibility considerations, must be validated to meet SCA requirements. Real-time fraud detection adds further pressure. Fraud monitoring systems must operate within seconds, simulating patterns such as spoofing, social engineering, and account takeovers. AI/ML-driven fraud detection models should also be rigorously tested to maintain rapid, accurate responses. Additionally, sanctions screening processes must be validated to check that daily updates are applied without delaying payment flows.
Preparing for PSD3 and IPR through testing
The demands of instant payments and open banking require organizations to adopt a strategic, holistic, and proactive approach to testing. It is essential to validate the entire payment lifecycle across various systems and participants, including other PSPs, clearing networks, and third-party providers, to support reliable cross-organizational payment flows.
Security and fraud testing, API compliance, and interoperability testing should be embedded throughout the development process. Regression testing must accompany updates to APIs, fraud models or compliance controls to safeguard existing processes while enabling new features.
By embedding testing into the development cycle, organizations can not only meet IPR and PSD3 requirements but also capitalize on the faster, more innovative payments ecosystem these reforms create. This approach facilitates compliance, reduces risk, and unlocks opportunities for fintech innovation and embedded finance, allowing organizations to fully realize the benefits of the new regulatory landscape.
