Balancing security and customer experience: PSD2

30 May, 2019

PSD2 comes into full force later this year, and the topic continues to be widely discussed in the payments sector. With speculation on what exactly it will mean for businesses, there are growing numbers actively looking to collaborate with agile FinTech firms, enabling them to stay ahead of incoming changes. So, what are the factors influencing PSD2?

2FA (two-factor authentication)

From 14th September 2019, all e-commerce transactions will need to be processed via secured protocol, and online transactions over €30 will require further authentication, with some exemptions. Strong factor customer authentication (SCA) requirements mean that for transactions in the EEA, the issuer must use two-factor authentication (2FA) to process the payment, by selecting two of three factors from knowledge (ie PIN), possession (ie SMS verification) and biometrics (ie fingerprint).

Traditionally authentication models were dominated by ‘knowledge’ based factors such as passwords, however, the clear weakness of these meant that a second factor was needed, hence the more security focused ‘possession’ factor came into play, whereby one-time passcodes linked to a device are more commonly used. Furthermore, voice-first has been tipped by Google to be the next big user interface, so it makes sense that this may make an entry into 2FA in the near future as payments providers look to get savvy around their obligations.

One-click retailers

For ecommerce retailers processing payments within the EU, the introduction of 2FA removes the convenience of “one-click” purchases, as these will now require a second form to authenticate their payments, making the customer ‘checkout’ experience more inhibitive than before.

Eager not to lose out, providers are working quickly to innovate and find clever ways for their clients to meet their PSD2 risk obligation without seeing their bottom line suffer. With a focus on customer experience to see as little disruption as possible come September, those “one-click” retailers are increasingly looking to support convenience, using SMS passcodes, and push authentications in apps.

PSD2 driving innovation

Aside from driving more secure payments, meeting the demands of the ‘always on’ customer for self-serving information is a key outcome. The PSD2 directive enhances competition as well as the variety and consistency of financial products, resulting in the Open Banking off shoot. Several traditional banks are now taking part, including ABN Amro, Barclays, HSBC, Lloyds Bank, Santander, as well as challengers, Revolut, Starling Bank and ClearBank, enabling customers to make more informed choices from a wider range of financial products, when and how they want it. This indicates that long established financial institutions can no longer be satisfied with traditional models as both regulations and customer appetites continue to evolve, and the popularity and scope of Open Banking will likely continue to grow and adapt with regulation and technology.

Businesses who process payments should look at the introduction of PSD2, as with all change, as both a journey and opportunity to seize innovation and a chance to reassess systems and processes in order to future-proof. Open Banking, 2FA and the resulting impact on online retailers provides an opportunity to encourage innovation and change the way payments and financial products are made and accessed online. Collaboration between Banks and FinTech providers on offerings ensure the pairing will be beneficial for their customers, and consequently, their bottom line too.  Financial institutions and FinTech should work together to achieve mutually beneficial goals, ensuring longevity.

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