Why this list matters: payments are becoming compliance plumbing, not a growth hack
If you build or run a payment stack and still treat regulation as an afterthought, this list matters. The next few years will push identity, data, and settlement into the core of how money moves. That’s dull, but it’s unavoidable. I used to think APIs and open banking would magically make everything frictionless. I was wrong - friction didn’t disappear, it moved to the compliance team and the bank's legal department.
Think of the payments ecosystem as an aging plumbing network. For years you could add nice-looking fixtures and pretend the pipes were fine. Now the regulators and banks are opening manholes, demanding certificates for every pipe joint, and replacing sections with new, stricter piping standards. If your app or gateway can’t show where the water came from and where it’s going, the local authorities will shut off the supply.
This list is a practical map: it connects specific EU instruments by number, points out how banks are reacting, explains the ISO 20022-2025 timing, and lays out choices payment processors must make about third-party relationships and custody. No hype. Just specific obligations, predictable bank behavior, and the engineering trade-offs you’ll be forced to pick between.
more infoStrategy #1: EU AML directives and PSD2 are rewriting who must be identified
Two regulatory facts collide and change the rules. First, PSD2 - Directive (EU) 2015/2366 - opened access to payment initiation and account information for third parties. That was supposed to increase competition. Second, successive anti-money laundering directives tightened criminal and compliance obligations: Directive (EU) 2015/849 (the 4th AMLD), Directive (EU) 2018/843 (the 5th AMLD), and Directive (EU) 2018/1673 (the 6th AMLD) expanded definitions of money-laundering offenses and increased due diligence requirements for providers.
Put bluntly: PSD2 says third parties can access accounts; AMLD rules say every actor in the chain may be culpable if a dirty flow occurs. That creates a legal tug-of-war where banks and regulators expect clearer identity and provenance data at the point of initiation. GDPR - Regulation (EU) 2016/679 - and eIDAS - Regulation (EU) No 910/2014 - overlay privacy and electronic ID standards. You can’t collect everything indiscriminately, but you must collect enough to prove you tried to stop abuse.
Analogy: imagine opening your house to vetted repair workers (PSD2). The city then demands every visitor carry ID and logs the visit (AMLD rules). You don’t get to say “we’re a platform” and look the other way. Expect regulators to expect proof of identity up and down the chain - from payers to payee merchants and any intermediary.
Strategy #2: Banks are pruning counterparties - third-party elimination is real and pragmatic
Banks are not lazy; they are risk calculators with capital and reputational constraints. When regulators raise AML expectations, banks respond by reducing their exposure to unclear flows. That response shows up as derisking: closing correspondent lines, asking for extra onboarding evidence, and de-platforming payment facilitators that can’t show strong Know Your Business (KYB) controls.
I’ve watched this happen across multiple cycles. In practice it means the bank that once tolerated a “payfac” model now demands the merchant’s ultimate beneficial owner data, real-time transaction tagging, and contractual indemnities. If the payfac can’t provide that, the bank will cut the relationship. The wholesale effect is "third-party elimination" – marginal intermediaries are squeezed out, leaving processors to either own more of the stack or hand off to a smaller number of fully documented partners.
Here’s a concrete example: a European bank used to accept settlement for marketplaces with a lightweight onboarding flow. After an AML inspection citing unclear beneficiary lines, the bank required each marketplace to surface the final retailer’s UBO at onboarding and again in file-level payment messages. Many marketplaces couldn’t comply and had to switch to banks that specialize in marketplace risk. That cost time and margin.
Metaphor: banks are pruning a hedge. They keep the strong branches and cut the brittle twigs that might fall on the sidewalk and attract a lawsuit.
Strategy #3: Institutional self-storage - why custody is moving in-house and what that costs
"Self-storage" is shorthand for institutions deciding to hold assets or controls internally rather than relying on an external custodian. This has shown up in crypto custody, stablecoin treasury management, and traditional FX liquidity setups. The driver is simple: if you control custody, you control audits, reconciliation, and the blame when something goes wrong. Regulators and institutional clients like clarity over who holds the keys.
That trend is not free. Running custody requires legal wrappers, insurance, operational discipline, and compliance teams able to certify controls. For payment processors the choice is binary in many cases: absorb custody and the cost of hardened controls, or partner with a trusted custodial bank that will demand more strict onboarding and higher fees. Both paths reduce margin compared with the "let someone else do it" era.
Example: a payment aggregator chose to build an internal wallet to maintain settlement rail flexibility. They had to implement segregation of client funds, regular proof-of-reserve reports, and contracts aligned with Directive (EU) 2015/849 obligations. The payoff was access to certain bank corridors that required direct custody. The cost was a doubled headcount in operations and a stricter audit schedule.
Analogy: custody is like owning a private safe-deposit room versus renting a locker. Owning gives you control but you also own the liability if the roof leaks.
Strategy #4: ISO 20022 and the 2025 messaging shift will turn every payment into a richer ID event
ISO 20022 is not a sexy product feature. It’s a new language for payment messages that carries far more structured data than legacy formats. SWIFT and many large rails are moving to ISO 20022-compliant messaging on a firm timeline that culminates in wider adoption around 2025. That matters for two reasons: richer fields mean better automated screening, and you will be expected to populate those fields with credible identity and business data.
For payment processors that translates into a migration project. Your onboarding and transaction flows must produce structured outputs: legal entity identifiers, standardized address formats, VAT numbers or registration IDs, and clearer remittance information. That reduces some manual reconciliations but raises the bar on how complete your data capture must be. If you skip it, banks will reject or hold your payments.
Practically, payment processors should map existing data models to ISO 20022 tags now, and run tests with partner banks before the 2025 wave. Expect message validation rules to be strict - empty structured fields will trigger investigations. It’s like moving from paper cheques with scrawled notes to typed forms with named fields for every detail. That’s painful initially, and then it becomes your new normal.
Strategy #5: Build KYC that balances friction, auditability, and data minimization
Designing KYC is a negotiation between three forces: user experience, audit evidence, and privacy law. GDPR forces you to minimize and justify data collection. AML directions demand documentation and traceability. Banks demand proof. Your job is to thread the needle so you don’t lose customers at the signup screen while still surviving regulatory and banking audits.
Some practical patterns that survive scrutiny: (a) risk-based KYC: low-value, low-risk customers get streamlined checks and transaction monitoring; (b) staged KYC: collect minimal data initially, but require additional identity documents or KYB as activity thresholds are crossed; (c) verified eID integration: use eIDAS-compliant identity providers to produce legally admissible identity evidence; (d) immutable audit trails: store hashes and signed receipts of verification steps so you can prove due diligence without hoarding raw personal data.
Example implementation: a processor allows onboarding with basic corporate ID and a business email. Once monthly volume exceeds a threshold, the system automatically triggers KYB collection - company registry extracts, UBO declarations, and an eIDAS-verified sign-off. Transaction rules throttle high-risk payment types until KYB is complete. The result is less friction for 70% of users and documented control over the remainder.
Metaphor: your KYC should be a Swiss Army knife - compact where possible, but with a solid blade ready when you need it.
Your 30-Day Action Plan: concrete sprints to survive the 2025 rails and bank scrutiny
Don’t wait for audits to force change. Here’s a prioritized 30-day plan that will keep your rails open and make bankers less inclined to cut you loose.
Days 1-5: Regulatory inventory and quick wins
List which EU rules apply to your flows: PSD2 (Directive (EU) 2015/2366), AML directives (Directives (EU) 2015/849, 2018/843, 2018/1673), eIDAS (Regulation (EU) No 910/2014), GDPR (Regulation (EU) 2016/679). Identify the highest-risk corridors and the top five banks you use. Ask those banks for their data requirements and test files now.
Days 6-12: Data mapping and ISO 20022 readiness
Map current onboarding and transaction fields to ISO 20022 tags. Build validators to ensure required fields aren’t empty. If you can’t populate a field, decide how you’ll obtain or derive it. Create a short remediation script for incomplete payments.
Days 13-20: KYC/KYB policy and tech changes
Formalize a staged KYC policy. Integrate an eIDAS-compliant ID provider and a KYB registry extractor. Implement an automated threshold that escalates accounts for deeper checks. Store proof-of-checks as signed artifacts to reduce disputes.
Days 21-25: Bank engagement and test file exchange
Run test payment files with partner banks using your ISO 20022 mappings. Get written confirmation of accepted schemas. If a bank rejects your sample, treat that as high priority.
Days 26-30: Operational drills and contingency plans
Run a mock audit: produce a compliance pack for one merchant and one settlement file. Draft a contingency route for payments if a partner bank pulls service - identify an alternate bank or custodial partner and document handover steps.
That plan buys you time and credibility. Banks respond to documented processes. Regulators respond to demonstrable controls. And your product team gets to keep selling without being interrupted by a sudden derisking event. I’ve been burned by optimistic rollouts before; the fix was never a glossy roadmap. It was methodical execution of the basics, with evidence.