PSD2 & SCA regulation including 3D Secure

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Libby James
Merchant Services Expert

Libby James is co-founder, director and an expert in all things merchant services. Libby is the go-to specialist for business with more complex requirements or businesses that are struggling to find a provider that will accept them. Libby is regularly cited in trade, national and international media.

What is PSD2 and SCA regulation?

PSD2 stands for Payment Service Directive version 2, which came into effect in January 2019. It’s applicable to transactions where both the issuing bank and/or the merchant card issuing bank are within the European Economic Area. There are two reasons for this new EU regulation;
– Improve security and reduce fraud when it comes to electronic payments (this is where the SCA part comes in) meaning Strong Consumer Authentication which comes into force on 14th September 2019.
– The idea behind part of this regulation is to encourage innovation and competition amongst payment companies, which is quite exciting as it means that it won’t just be the banks who can offer payment services. The impact of which will hopefully lower processing costs.

What is 3D Secure?

The most common way for companies to comply with the PSD2 regulation and SCA is known as 3D secure processes – which your merchant account provider should have told you about. 3D Secure should be seen as an additional safety net shoppers will have to use to prevent fraud and chargebacks. It works by shoppers using two out of the three security elements below;

– Identifying who they are. I.e. using your fingerprint or biometrics
– Using a pre-registered device or token system
– Using a password or PIN

Customers are used to using at least one of the above, especially with the increased use of mobile payments such as iPhones, however 3d secure will now provide much needed additional authentication for online purchases.

How does 3D Secure work for the customer?

Issuing banks will carry out a Risk Authentication score prior to full authorisation of transactions, this will include;

– Value of transaction
– If the customer is a new or returning customer
– Transaction history
– Device information
– Behavioural history

The ‘level of risk’ following this assessment will then determine one of the following security routes;

– No additional checks needed, ie they have happy with the low risk outcomes of above
– Additional information needed to authenticate the customer, using one of the three methods mentioned in the SCA process above.

Exemptions to SCA regulations

Although SCA should no doubt be at the centre of any online purchase, there are some exclusions;

– Transactions under €30
– Low risk transactions up to €500 (the merchant must have a low chargeback and fraud rate for this to be applicable)
– Business to business transactions
– MOTO payments – mail order and telephone order, example IVR
– Repeat or recurring payments such as subscriptions, also known as MIT (Merchant Initiated Transactions)
– Payments where the acquiring bank are outside of the EEA
– Trusted listings – where the customer can ask for the merchant to be a part of their trusted payments list

Am I responsible for ensuring SCA?

It falls to the banks or issuers to provide adequate authentication in line with PSD2, however that’s not to say that some of the obligations lie with you the merchant. For example some banks will not process transactions from merchants if they do not meet expected standards of SCA. If you have been served notice by your existing provider, speak to our brokers today for assistance.


How do I meet SCA requirements set by my merchant bank?

Your existing merchant banks will contact you with the procedures which you must follow to ensure you can continue to accept transactions following 14th September 2019. Ordinarily this will include a step up process which ensures the customer journey is SCA centric and allows merchants to set their exemptions where required.

Consequences for not being PSD2 complaint

The FCA have recently announced that they will not be taking immediate action against those not PSD2 compliant by the deadline, however the pending regulations are not to be ignored.

How do I reduce checkout bounce rates following PSD2 regulations?

Understandably merchants are concerned about how the new SCA regulations will influence the customer journey and more specifically bounce rate at checkout. Although the new regulations are not to be ignored offering customers more choice when it comes to payments could limit failed transactions while also providing Strong Customer Authentication in alternative ways. An example of this is using IVR solutions to allow customers to call and automatically pay over the phone which currently doesn’t fall under PSD2.

Questions about PSD2?

Our brokers are happy to assist with questions you may have surrounding the new PSD2 regulation. Call and speak with us today

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Libby James

Libby James Co-founded Merchant Advice Service alongside David Bird in 2016. Her finance background, coupled with retail and customer service experience, gave Libby the drive to bring transparency and non-biased advice to the world of merchant services. Having come from the heavily regulated mortgage and insurance industry, Libby found it puzzling that other financial sectors lacked regulation and transparency leaving customers confused and unable to make informed decisions when it came to accepting card payments. This was soon to become Libby’s obsession!

With the help of some of the industry’s best, Libby began to research acquiring banks, complex terminology/regulation, and the problems customers experience within merchant services and payment gateway markets. She spent years on sourcing solutions for complex clients, which previously others were unable to assist with. Libby established relationships with brokers and banks which would soon form the cornerstone of Merchant Advice Service. As a result Libby has been featured in high-profile publications across the web.

Libby is proud to be the entrepreneur’s champion, supporting start-up businesses regularly. Her industry insights can often be found on LinkedIn where she provides free of charge advice and money saving pointers. It’s safe to say she has her finger on the pulse of everything card payments related.

Libby speaks of her experience in founding and running Merchant Advice Service…

‘Merchant Advice Service is one of my greatest achievements to date. We help business owners to overcome card processing issues which can become detrimental to their business. We assist SME’s in finding suitable card payments solutions, helping them create their vision. Each and every day is different, exciting and fore filling. As technology advances I can’t wait to see the way in which the merchant services market advances, and I’m pleased that our business will play a part in educating company owners along the way.’

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