This September the European Payment Services Directive (PSD2) comes into play requiring retailers to implement new methods to authenticate transactions. As the new legislation rolls out internet retailers must refine their checkout processes and invest in technology to ensure they conform to the regulations, as well as creating memorable experiences for consumers.
While many businesses associate PSD2 with painful system changes, it presents a ‘moment in time’ opportunity for retailers to ensure their checkout process is ready and the overall customer payments experience is improved. In this light, here are three features of the upcoming legislation that every retailer should be aware of:
The imposition of Strong Customer Authentication (SCA) is a key element of the legislation and will be enforced from September. Requiring businesses to use at least two authentication elements to verify electronic payments when challenged by a card issuer. The purpose of this regulation is to tackle fraudulent card transaction and there are positives for both customers and merchants:
SCA enhances security for ‘card not present’ transactions. Merchants must verify payments using either something the customer owns (such as a computer or mobile device), something the customer knows (password or temporary code) or something the customer is (through biometrics or facial recognition). In the wake of PSD2’s additional requirements, 3DS 2.0 has emerged to help create a seamless authentication experience for consumers.
Thanks to new APIs created during the first implementation of PSD2, Adyen’s 3DS 2.0 solution for example, can utilise hundreds of datapoints to authenticate payments that require strong authentication, without intervention from the customer. It can all happen in the background as they are entering their payment details and confirming their order. It is also optimised for mobile and mobile apps, so merchants can now elevate authentication processes such as facial recognition, one-time passwords etc. to improve speed and convenience at the checkout, as well as drive customer conversion.
From a merchant perspective, additional authentication usually means friction to their customers’ checkout experience and can negatively impact conversion rates. Merchants need to find the balance when it comes to managing payments fraud, as it’s not only about keeping out the ‘bad’ transactions, but also about removing friction for the ‘good’ ones. However, 3DS 2.0 is much more dynamic, it streamlines the authentication process and improves the customer experience. So not only does it help merchants comply with PSD2 without impacting conversion, it also helps reduce fraud-related chargebacks through strong authentication.
During the roll-out of PSD2, an alternative payment service powered by Open Banking was introduced to help the UK implement the legislation. The APIs created under open banking have enabled merchants to keep things simpler for customers and create new ways to pay.
Open banking puts the customer in control, allowing them to make informed decisions while enjoying simple and easy navigation and a secure customer journey.
Understanding payments data will also help retailers enhance customer experiences and business strategy. It can also be used by omnichannel retailers to understand the online and offline behaviours of their shoppers. This gives their front of house teams the opportunity to identify strategic growth areas for their business by ensuring an appropriate level of service and interaction with these loyal customers. What’s more, our research suggests that more than a quarter of UK retailers are investing in training for their staff, to better understand data insights derived from customers’ browsing and buying habits.
There is no doubt that the customer experience bar is set high with the introduction of new technology to the market, and every year continues to increase. Successful retailers are adapting to meet these new demands despite regulatory conditions, and those who fall behind could be losing out.
While PSD2 is an EU directive, it has global ramifications for online commerce. Any retailer from outside the EU that is selling to customers in the European Economic Area will need to comply with the new PSD2 standards. For those businesses, the impact of the legislation is such that they will need to comply to keep revenue streams from European customers open. In many cases, the logistical and financial issues that go alongside these regulations can sometimes not be worth the hassle of offering its services in European markets. By using 3DS 2.0, global retailers can easily accept transactions originating in Europe.
PSD2 should be seen as an opportunity for businesses to re-evaluate their processes to create a better customer experience – not as a logistical nightmare. Investing in payment solutions that implement 3DS 2.0 is one way of ensuring PSD2 regulations are met, while removing the pain points that can be associated with strong authentication. Embracing open banking is another way of diversifying your offering and capitalising on the latest payment revolution. If retailers view PSD2 as a pure compliance or security requirement then they are missing out on the opportunity to enhance the modern era of authentication with a payment experience that their customers will love.