John Marsden, Managing Director EMEA, iovation inc

Industry View from

How to ensure PSD2 doesn’t clog up your checkout process

Which companies will benefit from PSD2? Device intelligence is key.


Based on the same GDPR principles of enforcing consumer protection and security requirements for companies operating in Europe, the revised Payment Services Directive (PSD2), which takes effect this September, changes the global payment industry landscape. With PSD2, companies providing payment services in Europe, not just those headquartered there, must comply with the directive’s requirements for strong customer authentication (SCA) and third-party access to bank accounts or risk their payment provider licence.


The SCA requirements under PSD2 could have the unintended consequence of introducing friction into the buying process and impacting e-commerce conversions, similar to what happened with the introduction of 3D Secure, an online card fraud security protocol with a three-part payer authentication process. It is estimated that 3D Secure increased cart abandonment anywhere from 15 to 20 per cent. So what can payment service providers (PSPs) and merchants do to avoid a similar situation with PSD2?


To start with, they can maximise exemptions to SCA – specifically through risk-based transaction analysis, which increases the threshold for transactions subject to SCA based on fraud rate. Also, organisations can increase the threshold for SCA checks from the default rate of €30 to €500 if the lowest reference fraud rate is achieved. The potential market advantage this could provide can’t be overstated. Imagine a Merchant being able to, for example, provide a one-click checkout for all transactions below €500, compared with a competitor who can only make the same offer for transactions below €30. That’s a definite advantage.


Reaching the lowest-reference fraud rates will require a layered approach that protects all points of the customer journey. iovation’s deep device intelligence allows us to provide real-time risk insights and reputation data to protect against threats such as credit card fraud, account takeover and use of stolen identities. Combined with our machine learning technology, which predicts the likelihood that a transaction will become fraudulent, you can better prioritise your review queue and catch more fraud. iovation’s comprehensive fraud solutions help you to reach the lowest reference fraud rates.


The winners post-PSD2 will be those that maximise exemptions to SCA and decrease friction for those transactions that are subject to SCA – ultimately striking the balance between security and customer experience.

Visit here to get our custom, complimentary report on PSD2 with Aite Group.


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