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PSD2 Explained: How it Impacts EU Merchants

PSD2 EU Merchants

Imagine a world where online payments within the EU are frictionless, secure, and foster innovation. That’s the ambitious vision behind the Payment Services Directive 2 (PSD2), a game-changer that’s reshaping the European payments landscape. But for merchants, navigating this new territory can feel daunting. Fear not! This comprehensive guide will equip you with the knowledge to thrive in the PSD2 era.

What is PSD2 and Why is it Relevant Today?

PSD2, implemented in 2018, is a European Union (EU) regulation aimed at bolstering security and fostering competition in online payments. It applies to all electronic payments within the European Economic Area (EEA). The regulation, still very much relevant today, impacts merchants by introducing:

  • Strong Customer Authentication (SCA): This multi-factor authentication process adds an extra layer of security during online transactions, reducing fraud and protecting consumers.
  • Open Banking: PSD2 paves the way for Open Banking Solutions (OBPs), which allow third-party providers (Account Information Service Providers or AISPs) to access customer account information with their consent. This opens doors for innovative payment methods and financial services.
  • Focus on Competition: PSD2 fosters a more level playing field by allowing new payment service providers (PSPs) to enter the market, potentially lowering fees and driving innovation.

 

These changes, while positive overall, require merchants to adapt their payment processing systems and stay updated on evolving regulations.

Key Aspects of PSD2 for Merchants:

1. Strong Customer Authentication (SCA):

This is a central pillar of PSD2. SCA mandates that online transactions require two or more authentication factors from the following categories:

  • Something the user knows: PIN, password
  • Something the user possesses: Mobile phone, security token
  • Something the user is: Fingerprint, facial recognition

 

While SCA adds a layer of security, it can potentially impact conversion rates if not implemented smoothly.

Here’s how to make SCA work for you:

  • Partner with a SCA-compliant payment processor: Ensure your PSP offers SCA solutions that are user-friendly and minimize friction during checkout. Don’t settle for a one-size-fits-all approach. Look for a PSP that provides a variety of SCA methods to cater to different customer preferences and risk profiles.
  • Educate your customers: Inform them about SCA well in advance of any changes to your checkout process. Explain the importance of strong passwords and secure authentication methods. Consider creating clear and concise FAQs or video tutorials to guide customers through the SCA process.

 

Offer alternative authentication methods: Cater to diverse customer preferences by providing a range of SCA options. This could include fingerprint or facial recognition for mobile app users, one-time SMS codes, or hardware tokens for those who prefer a physical method.

2. Open Banking and Account Information Service Providers (AISPs):

PSD2 unlocks the door for Open Banking, where AISPs, with customer consent, can access financial data to offer innovative payment solutions. This could translate to:

  • Faster and more convenient checkout processes: Imagine a future where customers can pay directly from their bank accounts without entering card details. This streamlines the checkout process, reducing cart abandonment rates and boosting conversions.
  • Emerging payment methods: Open Banking could pave the way for new and exciting payment options like account-to-account (A2A) payments. A2A payments are often faster and cheaper than traditional card payments, potentially giving you a competitive edge.

 

Here’s how to leverage Open Banking:

  • Stay informed about AISP offerings: The AISP landscape is constantly evolving. Regularly explore the services offered by AISPs and how they could benefit your business. Look for AISPs that specialize in specific areas, such as faster payments or fraud prevention, to find solutions that align with your unique needs.
  • Partner with an AISP-friendly PSP: Choose a payment processor that facilitates seamless integration with AISP services. An ideal PSP will have established partnerships with leading AISPs and provide the technical expertise to connect you with the right providers.

3. Cross-Border Payments:

PSD2 aims to create a more unified payments market within the EEA. This can benefit merchants by:

  • Reduced costs: PSD2 regulations aim to eliminate surcharges for cross-border transactions, potentially lowering your payment processing fees. This can significantly improve your profit margins, especially if you sell to customers across different European countries.
  • Wider customer base: Easier and more cost-effective cross-border payments can open your doors to a wider customer base across the EEA. By removing friction from the payment process, you can attract customers who may have previously been hesitant to purchase from an international seller.

 

Here’s how to capitalize on improved cross-border payments:

  • Offer localized payment options: Cater to customer preferences by providing popular payment methods from different European countries. This could include local bank transfers, e-wallets, or prepaid cards. Partnering with a PSP that offers a wide range of regional payment options can streamline this process.
  • Market your products and services across borders: With PSD2 making cross-border payments smoother, consider expanding your marketing efforts to reach customers in other European countries. Translate your website and marketing materials into relevant languages, and explore cross-border advertising opportunities.

How Capri Payments Can Help You

At Capri Payments, we understand the complexities of navigating the evolving payments landscape in the EU. We are a PCI-DSS compliant payment processor that offers a comprehensive suite of solutions designed to help merchants thrive in the PSD2 era. Here’s how we can help:

  • SCA-ready Solutions: We offer a variety of SCA-compliant authentication methods, including 3D Secure, SMS OTP, and mobile app authentication. Our solutions are designed to be user-friendly and minimize friction at checkout.
  • Open Banking Integration: We partner with leading AISPs to provide you with access to innovative payment solutions and account information services. Our team can help you identify the right AISP for your business needs and ensure seamless integration with your existing systems.
  • Cross-Border Payment Expertise: We have extensive experience in facilitating cross-border payments within the EU. We offer competitive rates, transparent pricing, and support for various regional payment methods.

General FAQs

PSD2 applies to all businesses that accept electronic payments from customers located within the European Economic Area (EEA).

Penalties for non-compliance with PSD2 can vary depending on the specific regulation breached and the member state. These penalties can range from fines to suspension of operating licenses.

SCA requirements are already in effect. While there has been some flexibility in enforcement timelines, it's crucial to ensure your systems are SCA-compliant to avoid disruptions.

While SCA may add a slight processing step, the long-term benefits of PSD2, such as increased security and potentially lower cross-border fees, can outweigh these costs. Additionally, choosing a PSD2-compliant payment processor with efficient SCA solutions can help minimize any cost increases.

Conclusion

PSD2 is a significant development in the European payments landscape. While it presents some challenges for merchants, it also unlocks a world of opportunities. By understanding the key aspects of PSD2 and taking proactive steps to adapt, you can ensure your business is compliant, secure, and well-positioned to thrive in the new era of open banking and frictionless payments.

Don't let PSD2 become a hurdle. Let Capri Payments be your guide! Contact us today to discuss your PSD2 compliance needs and explore how our solutions can help you unlock the full potential of the European payments market.

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