The PSD2 problem: New payment tech regulations present challenge for retailers

Oct 21, 2019 | E-commerce

Last month, new regulation came into force aims to better align payment regulation with new technology, with extra security requirements and protections. New research shows the disparity between consumers and retailers over the new PSD2 regulations.

The Payment Services Directive 1(aka PSD1 or Directive 2007/64/EC) opened up the European banking and financial services market and went into effect almost 10 years ago.

PSD2 regulation will drastically impact the financial eco-system and infrastructure for banks, fintechs, and businesses using payment data for the benefits of consumers.

A brand new European-wide study conducted by eCommerce solution provider reveals both the extent of the impact that new PSD2 security measures are set to have on retailers’ profits and a staggering disparity between retailers’ and online shoppers’ awareness of the directive more generally.

You can find the full details in the release below, however, as an overview, conducted with 2,000 consumers and 200 retailers across Europe, unearthed the following standout findings:

  • One-third (32%) of European consumers say they would rather cancel their online purchase and go elsewhere than go through the verification measures PSD2 will require for some transactions
  • Nine out of ten (88%) European retailers believe consumers are aware of the regulation, yet more than three quarters (76%) of consumers say they are unaware of the regulation
  • A fifth (22%) of retailers are yet to take any steps to minimise the negative impact of PSD2 on their revenues

The survey of 2,000 consumers and 200 retailers, with respondents evenly split across the UK, Germany, France, and Spain, found that nine out of ten retailers (88%) believe consumers are ‘somewhat’ or ‘very aware’ of PSD2. However, more than three-quarters (76%) of consumers report that they haven’t even heard of it.

The implementation of the regulation is set to add new security measures for all online transactions over €30. This means that for most online transactions, consumers will need to undergo multi-factor authentication to verify their identity, such as entering a code received via their mobile phone, providing biometric data such as a fingerprint, or other forms of authentication.

In the UK specifically, the research revealed the following worrying findings:

  • 74% of consumers have not even heard of PSD2
  • Nine out of ten (92%) retailers think their online customers are ‘somewhat’ or ‘very aware’ of the legislation
  • One in three (33%) consumers said they would cancel their online purchase and go elsewhere if presented with PSD2’s identity verification requirements
  • One in five (18%) retailers still haven’t taken any steps to minimise the negative impact of PSD2 on their online sales

Commenting on the findings, Eido Gal, Co-Founder and CEO, Riskified, said: “Fraud is a major concern in eCommerce. We’re always in favour of better security, but it shouldn’t have to be a tradeoff with the customer experience. Unfortunately, some of PSD2’s security requirements could have a detrimental effect on online shopping, leading to unhappy customers and cart abandonment.

As these results show, anything that interferes with the online checkout process puts merchants at risk of losing customers and revenue. As PSD2 comes into effect, merchants should do everything they can to continue to provide excellent customer experience, while keeping transactions secured and fraud levels as low as possible.”

Riskified offers PSD2 Optimization, a product that leverages machine learning to enable merchants to maximise revenue and maintain a positive customer experience under the PSD2 directive. By maximising the use of Transaction Risk Analysis (TRA), merchants are able to avoid cart abandonment caused by Strong Customer Authentication (SCA), which adds friction at checkout. The result is more approved transactions and a faster checkout process.

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