# Three things every payments professional needs to know about PSD2 Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2019-02-27 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Everything You Need to Know About PSD2 Compliance in 2019 Meta Description: Get ready for the impact of PSD2 on the payments industry in 2019. Learn about Strong Customer Authentication and how Adyen's 3DS 2.0 solution can help URL: https://financedigest.com/three-things-every-payments-professional-needs-know-psd2html ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/psd2-1736839138547-compressed.png) _**Myles Dawson**, Managing Director Adyen UK_ If 2018 was the year of GDPR, 2019 is the year of European Payment Services Directive (PSD2) – particularly for those working in the payments, banking or retail sectors. Last year, PSD2 banned surcharges for processing card transactions, forcing many companies to absorb the additional cost for these transactions. Whilst many took the financial hit, some upped their prices to cover costs, leaving a bad taste in many consumers’ mouths. ![Myles Dawson](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/myles-450x675-1736839137867-compressed.jpg) Myles Dawson As new legislation rolls out across Europe in 2019, [businesses must prepare to avoid](https://www.financedigest.com/a-taxing-issue-ten-tax-invoicing-pitfalls-that-international-businesses-must-avoid.html "A taxing issue: Ten tax invoicing pitfalls that international businesses must avoid") any unexpected surprises. This will involve refinement of back-end processes and [investing in technology to ensure they conform to the regulations](https://www.financedigest.com/american-igaming-and-sports-betting-is-on-the-rise-with-new-investments-and-regulations-2022-predictions.html "American iGaming and Sports Betting is on the rise with new investments and regulations – 2022 predictions"), whilst creating memorable experiences for consumers at the same time. Whilst many [businesses associate PSD2 with painful system changes](https://www.financedigest.com/lane-change-assist-systems-market-overview-business-growth-development-factors-application-and-future-prospects.html "Lane Change Assist Systems Market Overview – Business Growth, Development Factors, Application And Future Prospects"), it also provides ample opportunity for innovation. In this light, here are three features of the upcoming legislation that every professional involved in payments [needs to know](https://www.financedigest.com/setting-up-a-business-in-the-uk-heres-what-you-need-to-know.html "Setting up a business in the UK? Here’s what you need to know.") about. 1. **New ways to [fight fraud](https://www.financedigest.com/how-speech-recognition-and-ai-are-fighting-fraud-in-financial-services.html "How speech recognition and AI are fighting fraud in financial services ")** The imposition of [Strong Customer Authentication (SCA)](http://europa.eu/rapid/press-release_MEMO-17-4961_en.htm) is a key element of the legislation and will be enforced from September. Requiring businesses to use at least two [authentication elements to verify electronic payments when challenged by a card](https://www.financedigest.com/why-latin-america-chose-biometric-authentication-for-payment-cards.html "Why Latin America Chose Biometric Authentication for Payment Cards") issuer. The purpose of this regulation is to tackle fraudulent card transaction and there are positives for both customers and merchants: - **Consumers** – SCA enhances security for ‘card not present’ transactions. [Merchants must](https://www.financedigest.com/psd2-merchants-must-regain-checkout-control-through-delegated-authentication.html "PSD2: Merchants Must Regain Checkout Control Through Delegated Authentication") verify payments using something the customer owns (such as a computer or mobile device), something the customer knows (password or temporary code) or something the customer is (through biometrics or facial recognition). In the wake of PSD2’s additional requirements, 3DS 2.0 has emerged to help create a seamless [authentication experience for consumers](https://www.financedigest.com/behavioral-biometrics-simple-and-secure-way-to-authenticate-consumers-digital-identities.html "Behavioral Biometrics: Simple and Secure way to Authenticate Consumers’ Digital Identities"). Thanks to new APIs created during the first implementation of PSD2, Adyen’s 3DS 2.0 solution can analyse hundreds of data-points to authenticate [payments that require strong](https://www.financedigest.com/the-late-payments-toolkit-how-to-keep-the-cash-flow-strong.html "THE LATE PAYMENTS TOOLKIT – HOW TO KEEP THE CASH-FLOW STRONG") authentication, without intervention from the customer. It can all happen in the background as they are entering their payment details and confirming their order. It is also optimised for [mobile and mobile apps](https://www.financedigest.com/the-growth-of-mobile-fintech-and-the-impact-for-mobile-app-marketers.html "The growth of mobile fintech and the impact for mobile app marketers"). This is a huge contrast to the first iteration of 3D Secure (3DS1), which was a clunky [operation and often disrupted a customer’s](https://www.financedigest.com/australias-qantas-apologises-to-customers-for-operational-problems.html "Australia’s Qantas apologises to customers for operational problems") checkout experience. - **Merchants** – From a merchant perspective, additional verification usually means friction to their customers’ checkout experience and can [negatively impact conversion rates](https://www.financedigest.com/analysis-europe-says-goodbye-to-negative-rates-or-just-au-revoir.html "Analysis-Europe says goodbye to negative rates – or just ‘au revoir’?"). Merchants need to tread carefully when it comes to managing [payments fraud](https://www.financedigest.com/combating-payment-fraud-in-the-era-of-contactless-everything.html "Combating payment fraud in the era of contactless everything"), as it’s not only about keeping out the ‘bad’ transactions, but also about removing friction for the ‘good’ ones. However, 3DS 2.0 is much more dynamic, it streamlines the authentication process and improves the [customer experience](https://www.financedigest.com/financial-services-is-upping-its-customer-experience-game.html "Financial services is upping its customer experience game"). So not only does it help [merchant’s comply with PSD2 without impacting](https://www.financedigest.com/how-does-the-fca-deadline-extension-impact-uk-merchants.html "How Does the FCA Deadline Extension Impact UK Merchants?") conversion, it also helps reduce fraud-related charge-backs through strong authentication. 1. **New and improved customer experiences** During the roll-out of PSD2, an alternative payment [service powered by Open Banking](https://www.financedigest.com/the-future-of-financial-services-how-apis-are-fuelling-the-rapid-rise-of-open-banking.html "The future of financial services – how APIs are fuelling the rapid rise of Open Banking") was introduced to help the UK implement the legislation. The APIs created under [open banking have enabled merchants](https://www.financedigest.com/why-open-banking-heralds-a-new-era-of-ecommerce-merchant-and-bank-collaboration.html "Why Open Banking Heralds a New Era of eCommerce Merchant and Bank Collaboration") to keep things simpler for customers and create new ways to pay. As well as helping take the complexity out of the transaction process, open banking also puts the customer in control, allowing them to make informed decisions whilst enjoying a simple and easy [navigation and a secure customer journey](https://www.financedigest.com/how-to-navigate-a-seamless-journey-from-cio-to-chief-customer-officer.html "How to navigate a seamless journey from CIO to Chief Customer Officer"). PSD2 has been a revolutionary change for customers wanting to [take control of their finances](https://www.openbanking.org.uk/wp-content/uploads/Customer-Experience-Guidelines.pdf) by using data to shine a spotlight on their spending. [Understanding payments data](https://www.financedigest.com/understanding-the-realities-of-payment-data-monetisation.html "Understanding the realities of payment data monetisation") will also help merchants enhance customer experiences and drive loyalty initiatives. For example with Adyen, merchants can use payment data to  understand their customer base using metrics like visit frequency, location traffic and [average spend.](https://www.financedigest.com/card-spending-in-uk-falls-below-pre-covid-average-ons.html "Card spending in UK falls below pre-COVID average – ONS"). This can be used to help your front of house teams to identify frequent customers and ensure an appropriate level of service and interaction with these loyal customers. 3. **It has ramifications beyond the EU** While PSD2 is an EU directive, it has global ramifications. Any merchant from outside the EU that is [selling to customers in European Economic Area will need](https://www.financedigest.com/soccer-deep-pockets-needed-to-persuade-glazers-to-sell-united.html "Soccer – Deep pockets needed to persuade Glazers to sell United") to comply with the new PSD2 standards. For those businesses, the [impact of the legislation is such that they will need to comply to keep revenue](https://www.financedigest.com/railway-bearing-market-size-2021-key-manufacturers-industry-share-investment-opportunities-future-trends-market-impact-revenue-demand-and-analysis-by-forecast-2030.html "Railway Bearing Market Size 2021 Key Manufacturers, Industry Share, Investment Opportunities, Future Trends, Market Impact, Revenue, Demand and Analysis by Forecast 2030") streams from European customers open. In many cases, the logistical and financial issues that go alongside these regulations can sometimes not be worth the hassle of offering its services in [European markets](https://www.financedigest.com/white-bullets-collaboration-with-polands-sygnal-association-significantly-reduces-ad-funded-piracy-in-key-european-market.html "White Bullet’s collaboration with Poland’s Sygnał Association significantly reduces ad-funded piracy in key European market"). By using 3DS 2.0, [global merchants can easily accept transactions originating in Europe](https://www.financedigest.com/global-covid-19-cases-hit-250-million-eastern-europe-infections-at-record-levels.html "Global COVID-19 cases hit 250 million, eastern Europe infections at record levels"). Dynamic 3DS 2.0 solutions will automatically determine compliance requirements for each transaction, to help merchants to manage regulatory requirements. **Conclusion** PSD2 should not be stigmatised as a logistical nightmare – it should be seen as an opportunity for businesses to re-evaluate their processes to [create a better customer experience](https://www.financedigest.com/customer-experience-creating-the-calm-in-the-chaos.html "Customer Experience: creating the calm in the chaos"). Investing in [payment solutions that implement 3DS 2.0 is one way](https://www.financedigest.com/three-ways-blockchain-is-transforming-payments.html "Three ways blockchain is transforming payments") of ensuring PSD2 regulations are met, while removing the pain points that can be associated with strong authentication. Embracing [open banking](https://www.financedigest.com/why-open-banking-is-safe.html "WHY OPEN BANKING IS SAFE?") is another way of diversifying your offering and capitalising on the latest payment revolution. PSD2 is coming and merchants need to be [ready to embrace the opportunities](https://www.financedigest.com/an-analysis-of-vc-investment-in-the-defence-sector-and-the-mods-readiness-to-exploit-digital-opportunities.html "An analysis of VC investment in the Defence sector and the MOD’s readiness to exploit digital opportunities") it presents. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---