PSD2 implications for online merchants


What is PSD2?

The Payment Services Directive (PSD2) is an EU Directive, administered by the European Commission to regulate payment services and payment service providers throughout the European Union and European Economic Area. The original Payment Services Directive was adopted by the EU in 2007. The new directive, named PSD2, took effect on 13th January 2018, bringing in new laws aimed at improving consumer rights. However, some of the more convoluted regulations are only coming into force from September 2019, so merchants need to pay attention.

Why PSD2?

The Directive's purpose was to increase competition and participation in the payments industry, and to provide a level playing field by harmonising consumer protection and the rights and obligations for payment providers and users. For consumers, the directive aims to increase customer rights, guarantee faster payments, and give clearer information on payments.

The key areas of focus for PSD2 include:

  • Better consumer rights in areas including complaints handling, new rules on surcharging and currency conversion.
  • Enhanced security through SCA (Strong Customer Authentication) criteria i.e. Two out of three forms of ID will be required.
  • Enablement of third-party access to account information, providing a framework for new payment and account services.

Implications for online merchants

As an online merchant, understanding the changes and how they affect you can seem daunting, but in fact, PSD2 does bring benefits such as reduced fraud, a better and more secure experience for consumers, and less onus in terms of liability. It also means that funds from sales will be available to the merchant faster.

Changes to the way payments are taken raise the biggest concerns, with merchants worried about basket abandonment due to increased friction at payment. However, experts estimate that only 1 in 10 transactions will require 2-factor authentication. This is because low value and low risk transactions, as well as recurring transactions will be exempt. In addition, consumers are able to whitelist trusted merchants who they use regularly making even more transactions exempt.

So what should merchants do to prepare? In the first instance, they should contact their Payment Service Provider (PSP) to understand any changes needed to comply with PSD2. For merchants whose website has a direct integration with their PSP, there may be wider implications than for those that use hosted payment solutions.

On a final note, PSD2 once again puts the spotlight on consumer experience and the importance of building great customer relationships. Online businesses who have brand loyal customers will reap the benefits of being able to continue to provide a smooth checkout experience.

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