You are probably already aware of the effects and demands for Strong Customer Authentication (SCA) resulting from Payment Service Directive 2, or PSD2, which took effect in late 2020 in the European Economic Area and 2022 in the UK; if you have been selling or handling transactions in Europe or the United Kingdom in the past few years.
However, if your business is located outside the EU and the UK and you intend to sell there, you might not know your obligations for adhering to PSD2 requirements.
That might be a costly error because non-compliance could expose you to more denied payments, reducing your revenue. You’ll be able to process international payments more quickly and boost your income if you have an improved comprehension of psd2 compliance checklist as well as how to stay compliant.
PSD2: What Is It?
PSD2 is a collection of rules that apply to the markets in Europe and the UK. It was developed to enhance current electronic payment regulations and integrate payment services throughout the European Union. It affects all transactions that pass within the European Economic Area (EEA) and the UK in any way to enhance consumer protection when they make electronic payments.
The rules were part of a series of changes intended to provide a precise and thorough set of guidelines that apply to all present and future suppliers of cutting-edge payment services. Following Brexit, the UK has followed PSD2 rules for the UK market.
What Effect Will PSD2 Have On Your Company?
When your customer uses a debit or credit card issued by a bank in the EEA or the UK, PSD2 standards must be followed because each payment that passes through a bank in those countries is required to do so.
PSD2 compliance rules may nonetheless impact merchants who do not have a physical presence in the EEA or the UK. If your company conducts online sales to customers in these areas, you should try to have a PSD2-compliant payment system. Otherwise, there is a higher chance that the customer’s issuing bank will reject any attempts to authorize transactions from such areas.
Compliance Requirements For PSD2
Strong Customer Authentication (SCA), one of the PSD2 requirements, has the most impact on enterprises.
Businesses must use two-factor authentication when using a European acquiring bank to process online payments under SCA. All EEA and UK companies accepting online payments must support an SCA solution. SCA demands that at least two of the three distinct customer identities be used:
- The device, smart card, token, or badge that only the consumer has
- Something the client only knows, such as a password, PIN, passphrase, or confidential information
- Something that only the client is: speech pattern, iris format, voice characteristics, or fingerprint
By forcing issuers and merchants to verify customers using electronic payment methods in the EEA and UK, SCA seeks to combat fraud. It has shown to be effective thus far. Research from the European Banking Authority claims that SCA-enabled transactions see 70% to 80% less fraud than transactions without SCA.
Most (if not all) debit and credit card issuers within the EEA and UK will want to follow the PSD2 regulations, even if they don’t apply to merchants outside the EU and the UK. A transaction that does not use SCA is more likely to have its payment rejected.
SCA is the component of PSD2 compliance that has the most impact, but it is not the only one. Other prerequisites consist of the following:
Open APIs for Third-Party Access: PSD2 aims to increase competition in the payments industry in the EEA and UK. Banks must offer open API access to authorized vendors with access to individual account information. Account information companies should have access to the necessary account data via API calls after a customer permits access. For the bank to push payments to authorized third parties, open APIs are crucial for payment initiation.
Greater Transparency: To comply with PSD2, businesses must be as transparent as possible about their terms and conditions, exchange rates, and the full range of what the financial services they offer can do.
Faster Resolution of Complaints: Payment services companies must also respond to complaints quickly. The General Data Protection Regulation (GDPR) mandates that incidents under its purview must be reported to EU regulatory organizations within specific time frames. For instance, within 72 hours, a supervisory authority must be notified of a data breach.
No Credit Card Surcharges: Since PSD2 mandates parity between payment methods, no vendor, regardless of type, can charge extra fees to process credit card payments.
Be PSD2 Compliant: With PSD2 and SCA Compliance Solution
Whether your transactions are international or you use local card acquiring, you must have SCA if you’re a merchant wishing to start retailing in the EU. The PSD2 and SCA Compliance Solution is created to meet the SCA mandate and promote security in online transactions. The PSD2 and SCA Compliance Solution is more user-friendly, allowing for frictionless transactions and simple customer purchasing.
Businesses who deploy PSD2 and SCA Compliance Solution don’t just meet PSD2 compliance requirements; they also lower the risk of cart abandonment, stop fraud, and are no longer responsible for chargebacks associated with authenticated transactions.
Lastly, be aware that PSD2 laws aren’t fixed in stone. While work has already started on the PSD3 framework, the EU is still contemplating modifications to transaction standards and consumer protections. You may now prepare for future changes by implementing a solution like the PSD2 and SCA Compliance Solution.
Your PSD2 Compliance Checklist
There are some complexities to following PSD2 regulations. You can use the PSD2 Compliance Checklist provided by PSD2 and SCA Compliance Solution as a reminder to confirm that you are complying with the regulations and to make the most of your sales to customers in the EEA and the UK.
