How Will Government Legislation Impact the Future of Payments in 2025?

The payments industry is undergoing a period of rapid transformation, driven by technological advancements and evolving consumer expectations.

One of the key factors driving change is government legislation. New regulations aim to ensure security, transparency, and fairness in financial transactions. However, these regulations also introduce new complexities for financial institutions, payment processors, issuers, and acquirers. 

In 2025, it’s possible that the regulatory landscape could shift with an intensity that demands immediate attention.

Recent developments in the United States are poised to create ripples across the globe, potentially reshaping retail payments as we know them. From debates over interchange fees to proposed structural changes in government oversight, businesses in the payments ecosystem must brace themselves for significant swings - and act now to ensure resilience.

Navigating this dynamic regulatory landscape requires a strategic response - and payment testing efficiency and accuracy have become more important than ever. As new laws and guidelines reshape payment systems globally, organizations must adapt by rigorously testing their payment processes to ensure compliance, mitigate risks, and future-proof their systems.

“Leaders understand that proactive risk management is crucial, yet many organizations remain reactive, which leaves them vulnerable to threats that they might otherwise have prepared for.”

- 2024 BGC Global Payment Report

So what is happening from a payment legislation point of view in 2025?

The Interchange Fee Debate: Merchants Vs. Banks

A high-stakes battle is brewing between the Merchants Payments Coalition and the American Bankers Association over proposed reductions to debit card interchange fees.

The Federal Reserve's proposal to lower the base debit interchange fee by 30%, from 21 cents to 14.4 cents, has reignited tensions that have simmered since the 2010 Dodd-Frank Act first capped fees.

• For merchants, a reduction means lower costs, which could ease the financial strain in an era of tight margins.
• For banks, the proposed cap threatens a critical revenue stream, intensifying concerns about profitability and fraud mitigation.

Although public comments on this regulatory change closed in May 2024, the Fed has yet to act. The delay is atypical and leaves stakeholders in limbo, illustrating how unpredictable regulatory processes can disrupt business planning.

Payment processors, issuers, and acquirers should closely monitor developments and prepare for potential implementation in 2025, as the rule could significantly alter transaction economics.

A Shake-Up at the CFPB? Musk Calls for Its Elimination

Adding another layer of uncertainty, Elon Musk, appointed to lead Trump’s new "Department of Government Efficiency," has called for the elimination of the Consumer Financial Protection Bureau (CFPB).

In a post on X, Musk declared, “Delete CFPB. There are too many duplicative regulatory agencies.”

The CFPB, created in the wake of the 2008 financial crisis, has long been a watchdog for consumer protection in financial services. Its removal would mark a seismic shift in oversight, potentially leaving a gap in how consumer complaints, fraud issues, and predatory practices are addressed.

While this proposal may seem extreme, its implications for the retail payments space are significant:

• Consumer trust could falter without clear regulatory safeguards.
• Regulatory fragmentation could increase as state-level agencies scramble to fill the void.
• Global impacts might arise, as international partners question the stability of U.S. consumer protections.

Other Domestic and Global Regulations Impacting the Industry

Payment Services Directive 2 (PSD2)

The EU’s PSD2 has been transformative for the payments industry. Its key requirements include:

• Strong Customer Authentication (SCA): Multi-factor authentication is mandated to secure transactions and reduce fraud.
• Open Banking: PSD2 requires financial institutions to open their APIs to third-party providers, enabling seamless integrations and fostering innovation.

Compliance with PSD2 not only ensures security but also opens opportunities for new business models and partnerships in the payments ecosystem.

Dodd-Frank Act and Durbin Amendment

In the US, the Dodd-Frank Act, particularly the Durbin Amendment, focuses on:

• Reducing transaction fees for merchants.
• Increasing transparency in pricing structures for payment processors and acquirers.

While beneficial to merchants, these regulations introduce complexities for processors and issuers, who must adapt their systems to meet these requirements.

General Data Protection Regulation (GDPR)

GDPR enforces stringent data protection standards, impacting payment processors operating in the EU. Key compliance requirements include:

• Data Minimization: Ensuring that only necessary customer data is collected and processed.
• Data Breach Reporting: Organizations must report breaches within 72 hours.
• Fines for Non-Compliance: Penalties can reach up to €20 million or 4% of global annual revenue, whichever is higher.

Payment Card Industry Data Security Standard (PCI DSS)

The Payment Card Industry Data Security Standard (PCI DSS) establishes a comprehensive framework to ensure secure card transactions and protect cardholder data, and the updated 4.0 standard came into effect last year.

Key requirements include:

• Data Encryption: Payment systems must use robust encryption protocols to secure sensitive cardholder data during storage and transmission.
• Vulnerability Management: Regular system scans and software updates are required to prevent vulnerabilities that hackers could exploit.
• Access Controls: Strict restrictions on who can access cardholder data, with multi-factor authentication for system users.

Payment testing is crucial in validating compliance with PCI DSS standards by simulating payment scenarios, testing encryption integrity, and identifying potential vulnerabilities. Non-compliance can lead to significant penalties and increased risk of data breaches, impacting both reputation and revenue.

DORA is a More Recent Example of Emerging Government Legislation

The EU’s Digital Operational Resilience Act (DORA) highlights the trend toward stricter operational requirements. Key provisions include:

• Mandating regular testing to ensure system resilience.
• Requiring documentation of testing processes to prove compliance.

Non-compliance carries significant penalties:

• Fines of up to 2% of total annual worldwide revenues for organizations.
• Individual fines up to €1,000,000.
• Third-party providers face even steeper penalties, with maximum fines reaching €5,000,000.

Though currently focused on the EU, similar regulations are likely to be introduced in states across the US, signaling a global shift toward operational resilience in the payments industry.

The Critical Role of Payment Testing in Regulatory Compliance

“Compliance cannot stand still amid current marketplace changes. Leaders must adapt their approach.”

- 2024 BGC Global Payment Report

In a landscape shaped by evolving regulations, payment testing has emerged as a cornerstone of compliance and system reliability. Below are three critical reasons why payment testing is indispensable for modern payment systems:

1. Ensuring Compliance

Compliance with regulations such as PCI DSS, PSD2, GDPR, and AML requires meticulous validation of payment systems. Payment testing simulates real-world scenarios to:

• Compliance Validation: Payment testing ensures that payment systems meet specific regulatory requirements, including secure transaction processing, robust data encryption, and fraud detection. Simulations of complex payment flows help identify potential gaps, reducing the risk of non-compliance that could result in fines or damage to reputation.
  
  
• Fraud and AML Compliance: Testing validates that systems adhere to AML and BSA regulations by effectively implementing fraud detection mechanisms, customer identity verification processes, and continuous transaction monitoring. This ensures compliance with requirements to report suspicious activities and prevent money laundering.
  
  
• Data Privacy and Security: While the US does not have a GDPR equivalent, payment testing ensures compliance with data security standards such as PCI DSS. This includes verifying encryption protocols, protecting cardholder data, and ensuring secure storage and transmission of payment information.

By proactively identifying compliance gaps, organizations can avoid costly penalties and build trust with regulators and consumers alike.

2. Risk Mitigation

Payment testing is essential for identifying and mitigating risks associated with:

• Fraud Prevention: Payment testing simulates fraudulent scenarios, such as unauthorized transactions or phishing attacks, to validate the system's ability to detect and respond in real-time.
  
  
• Performance Testing for Reliability: Simulating high transaction volumes and varied payment conditions ensures that systems can withstand pressure without exposing vulnerabilities. This type of testing can also prevent potential breaches by identifying weak points before they can be exploited.
  
  
• Operational Continuity: Rigorous testing helps prepare systems for worst-case scenarios, such as power outages or unexpected spikes in transaction traffic, ensuring that operations remain unaffected and customers experience minimal disruption.

3. Future-Proofing Systems

Emerging technologies such as blockchain, central bank digital currencies (CBDCs), and biometric authentication are reshaping payments. Payment testing ensures that systems are:

• Integration with Emerging Technologies: Existing payment systems must be compatible with blockchain networks, CBDCs, and biometric authentication protocols. Robust and efficient payment testing capabilities can help ensure that these integrations work seamlessly, avoiding disruptions as organizations adopt new technologies.
  
  
• Scalability and Growth: Testing prepares systems to scale effectively, supporting higher transaction volumes as businesses grow. Performance tests and load simulations help identify potential bottlenecks, allowing for preemptive system upgrades.
  
  
• Resilience Against Change: Regular payment testing ensures systems remain adaptable to future regulatory changes and technological advancements. By maintaining flexible infrastructure, organizations can pivot quickly to meet new industry demands.

For more than 30 years Paragon Application Systems has been supporting the payment industry by providing innovative testing solutions that help ensure mission-critical payment systems are always compliant, reliable, and running at peak efficiency.

Investing in modern payment testing solutions helps industry participants optimize their testing operations so that they can respond quickly and accurately to new rules and regulations that are almost certain to come in the near future.

The team at Paragon can help review your current payment testing strategy, providing advice and guidance on how superior testing capabilities will help your organization stay compliant and competitive.

Request a consultation today!