How PSD2 Fraud Rules Will Impact Consumers

Feb 26, 2019

Every consumer wants an easy, smooth, safe payment experience, and that’s exactly what Payment Services Directive (PSD2) fraud rules aim to do. This is also why payment service providers are encouraged to talk to their customers about it.

By September 2019, any business with substantial European volume will need to implement strong authentication requirements as another way to ensure consumers’ online purchases are protected.

Though many consumers know that about the revisions to PSD2, many do not know how the modifications will impact their online buying experiences. Basically, the changes require payment service providers to add extra authentication features to protect consumers from fraud.

Those providers that inform consumers and implement the changes properly will experience fewer poor customer experiences and abandoned shopping carts and maintain conversion rates.

About the Changes

In July 2018, the European Banking Authority (EBA) published its guidelines on fraud reporting under the revised PSD2. The guidelines, which were developed in cooperation with the European Central Bank (ECB), were created for payment service providers and aim to increase the security of retail payments in the EU.

Under the guidelines, payment service providers across the 28 EU member states must collect and report data on payment transactions and fraudulent payment transactions using a consistent methodology, definitions, and data breakdowns. Reporting is required on a semi-annual basis. The guidelines’ reporting requirements align closely with the ECB Regulation on payment statistics.

Understanding Strong Customer Authentication

Strong Customer Authentication (SCA) is a new European requirement to make online transactions less vulnerable to fraud. When the changes take effect, a European shopper will have to submit extra levels of authentication to make a purchase. Therefore, simply submitting a password and a credit card’s CVV security code, shoppers will have to go a step further. Additionally, a consumer will need to proof their identities through DNA signature, facial recognition, voice patterns, or fingerprints. Or, they will need to prove it through a wearable device, smartphone, or token.

Transactions Not Bound By PSD2’s Changes

PSD2’s changes do not apply to all European transactions. The following are exempt from the changes:

  • Low value transactions (those under 30 EUR)
  • Low-risk transactions
  • Subscription and recurring payments
  • Moto transactions
  • Inter-regional transactions
  • B2B transactions

Also, transactions under 30 EUR also are exempt. However, issuers are required to keep track of these payments. Additionally, if within a 24-hour period, the total amount spent on a card without strong authentication is higher than 100 EUR, it is not exempt.

The Final Say on the Matter

Although two-factor SCA will help reduce fraud, there is a good chance it will impede the speed and convenience of online transactions. This is why it is critical that you inform consumers about the changes.

Merchant service providers also will need to step up their games in terms of implementing more sophisticated authentication technologies to stay in compliance. However, if they implement the right solutions, PSPs may make their businesses more attractive to new customers. The provider that can provide the most seamless, user-friendly experience will be the most successful.

If you are looking for payment processing for your online business, then consider working with eMerchantBroker.com (EMB). It offers many types of solutions for cross-border transactions and integrates seamlessly with many ecommerce platforms. Its application process is simple and quick. Apply online today to get started.

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A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

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