The new PSD2 directive (Payment Services Directive) has everyone involved in e-commerce worried – banks, third-party payment providers, and vendors are all anxious about this revised directive will impact their day to day business operations. Investing in PSD2 offers vendors the perfect chance to become less dependent on banks and more self-reliant. Investing in PSD2 is a revised version of 2009’s PSD1.
Understanding the Motivation Behind PSD2
As per the European Commission, the motivation behind this revised directive is to refine the current rules for making electronic payments inside the EU.
The European Union designed this directive to make online payments safer and more mobile-friendly. The revision was important for the EU because PSD1 regulations had become outdated. The directives did not consider the rise of intermediary players like FinTech companies who took advantage of innovative mobile and web applications to dominate the EU’s eCommerce industry.
The rules of PSD2 are meant to –
- Secure all Electronic Payments – All vendors, issuing banks, etc. are legally obliged to protect the financial data of shoppers. They must provide multifaceted transaction authentication processes to reduce the risk of fraudulent transactions.
- Make PSPs more Transparent – Payment Service Providers have to be more transparent about how they use the customer data they collect while facilitating the sale of products and services.
- More Rights – Vendors, PSPs, buyers, and other players in the EU’s eCommerce industry are now under one regulatory framework. There’ll be more rights for consumers and vendors who use PSP services. This directive aims to level the playing field in the European payments market and end the over-reliance on banks and other third-parties for processing online payments.
Impact on the Payments Market
The EU digital payments industry is set to reach a valuation of $802 billion by the end of 2020. Investing in PSD2 will level the playing field for all entities involved in this market, from banks to consumers. Some impacts of PSD2 include –
- Vendors Can Join the Lucrative EU Payment Market – Vendors and e-retailers who offer payment-initiation services can now become a part of the $802 billion industry.
- Consumer Rights – Users no longer have to pay surcharges for using credit/debit cards. Their ability to demand refunds (within a fixed period) has also improved. Plus, they get more security, as no liability will fall on their shoulders for non-authorized payments. Hence, hacking attacks will not affect consumers as badly as in the past.
- Interchange Charges – In the past, banks used to charge merchants for all card-based transactions. Under PSD2, these transaction processing fees have been eliminated. Hence, merchants won’t have to suffer and pay a fee whenever they accept debit or credit cards.
Overall, PSD2 will impact entities across Europe, including – significant banks, Account Information Service Providers (AISPS), Third-Party Payment Providers (TPPS), Account Servicing Payment Service Providers (ASPSPS), Payment Initiation Service Providers (PISPS), consumers, and vendors.
How Can Businesses be PSD2 Compliant?
There are several benefits of being PSD2-compliant for businesses. With reduced operating costs and smoother online transactions – vendors and online companies that invest in becoming PSD2 compliant will receive more revenue. Plus, being PSD2-compliant also makes online sellers more secure.
Here’s how businesses can be PSD2 Compliant –
Choose PSD2-compliant Payment Service Providers
Teaming up with PSD2-compliant PSPs relieves the vendors of a lot of responsibilities. Instead of worrying about PSD2 compliance and transaction legitimacy – they can focus on their business responsibilities. But, PSPs charge additional fees per transaction. So, it’s not the most cost-effective option.
Include Authentication Systems on their Checkout Pages
The most secure and cost-effective option for vendors is to install transaction authentication systems on their checkout pages.
As per PSD2 guidelines, online vendors need to set up a ‘3D Secure 2.0’ transaction-verification process to be PSD2-compliant. This process is a part of the SCA (strong customer authentication) rule under the PSD2 directives.
SCA protocols compel online sellers to add extra hoops for online shoppers to pass through when making digital payments. As per SCA requirements, to complete their online orders, customers must provide two of these three details –
- Biometrics like retina scans, signatures, etc.
- Something the acquirer possesses (e.g., a mobile phone number)
- Something that only the acquirer knows (e.g., a PIN code)
There are tools in the market that enable vendors to supervise their payment flows on their own. An efficient PSD2 Compliance Solution tool will make sure that all transactions are PSD2-compliant and SCA-compliant.
These tools also –
- Facilitate strong customer authentication (SCA) processes on each transaction
- Make sure certain low-risk transactions automatically qualify for SCA exemptions
- Deliver frictionless checkout experiences
- 3DS authentication process supports all commonly used credit cards.
- Screen fraudulent transactions; use this data to detect future threats.
- Can be adjusted to suit a vendor’s specific payment strategies
- Report and assess all transaction-related data. Vendors can use this data to fight chargeback disputes in the future.
By investing in PSD2-compliance software tools, vendors can now cut their dependency on third-party payment providers and become independent entities on the internet.