Navigating PSD2 Compliance For Your Business

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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?

Implementing the revised Payment Services Directive (PSD2) poses growing complexities for businesses accepting card payments. The diverse approaches of national regulators, banks, payment card associations, and service providers create challenges, exacerbated by varying compliance timelines across different countries.

Understanding PSD2 and SCA Regulation

PSD2, introduced in 2015 as a revision to the 2007 EU Directive, aims to enhance security in electronic payments through Strong Consumer Authentication (SCA). SCA, effective from 14th September 2019, requires two-factor authentication for transactions within the European Economic Area. The regulation also fosters innovation and competition among payment companies, potentially lowering processing costs.

The Role of 3D Secure

To comply with PSD2 and SCA, most businesses use 3D Secure processes. This adds an extra layer of security, requiring customers to use two out of three security elements: identification through biometrics or fingerprints, a pre-registered device or token system, and a password or PIN.

Goals of PSD2

PSD2 aims to increase integration, create a level playing field, enhance payment security, and protect consumers from fraud. Key changes for merchants and service providers include SCA implementation, payment provider licensing, and open bank data access.

How SCA Works for Customers

Issuing banks assess the risk authentication score for transactions, considering factors like transaction value, customer history, and device information. Depending on the risk level, customers may need additional authentication through one of the SCA methods.

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Exemptions to SCA

Certain transactions, such as those under £100, low-risk transactions up to £300, and business-to-business transactions, are exempt from SCA. Trusted listings, recurring payments, and transactions with banks outside the EEA also qualify for exemptions.

Responsibility for SCA Compliance

While banks and issuers bear the primary responsibility for SCA compliance, merchants must meet expected SCA standards. Failure to comply may result in transaction rejections, and non-compliance can lead to severe penalties, including fines and license withdrawal.



Meeting SCA Requirements

Merchant banks will provide procedures for SCA compliance, ensuring a customer-centric journey. Though immediate action might not be taken against non-compliance, pending regulations should not be ignored.

Reducing Checkout Bounce Rates

Merchants can limit failed transactions by offering alternative SCA-compliant payment options, such as IVR solutions for phone payments, not falling under PSD2 regulations.

SCA Exemptions

Certain payments, including low-value transactions, recurring payments, trusted beneficiaries, secured corporate payments, and low-risk payments, may be exempt from SCA. Payment service providers can request exemptions, subject to the cardholder’s bank approval.

FAQs

Commonly Asked Questions
What is PSD2, and why was it introduced?
PSD2 is a revised EU Directive introduced in 2015 to enhance security in electronic payments and foster innovation. It requires Strong Consumer Authentication (SCA) for transactions within the European Economic Area.
How does 3D Secure enhance payment security?
3D Secure adds an extra layer of security by requiring customers to use two out of three security elements: biometrics or fingerprints, a pre-registered device or token system, and a password or PIN.
What are the main goals of PSD2?
PSD2 aims to increase integration, create a level playing field, enhance payment security, and protect consumers from fraud. It introduces changes such as SCA implementation, payment provider licensing, and open bank data access.
Who is responsible for enforcing PSD2 regulations?
Banks and issuers primarily enforce PSD2 regulations. Merchants must meet expected SCA standards, and non-compliance can result in severe penalties, including fines and license withdrawal.
Are all transactions subject to SCA?
While most online payments in the EEA require SCA, some exemptions exist, such as transactions under £100, low-risk transactions up to £300, and business-to-business transactions.
How can merchants reduce checkout bounce rates following PSD2 regulations?
Merchants can offer alternative SCA-compliant payment options, such as IVR solutions for phone payments, to limit failed transactions and provide a seamless customer experience.
Can merchants request exemptions to SCA?
Payment service providers can request exemptions for certain transactions, such as low-value payments, recurring payments, trusted beneficiaries, secured corporate payments, and low-risk payments.
What is the consequence of not being PSD2 compliant?
While the FCA may not take immediate action, non-compliance with PSD2 can lead to severe penalties for payment service providers, including fines and license withdrawal.

How Merchant Advisory Service (MAS) Can Help

Understanding and implementing Strong Customer Authentication (SCA) under PSD2 is crucial for businesses in the payments market. PSD2 requires financial institutions and service providers, including Payment Initiation Services (PIS) and Account Information Services Providers (AISP), to adopt rigorous security measures. This not only protects bank account data but also promotes a safer financial services environment.

For businesses, implementing SCA means adapting to Regulatory Technical Standards (RTS) and ensuring that account servicing and payment services are compliant. This can be a complex process, but it’s essential to avoid penalties and maintain customer trust. Financial services providers should assist their clients in navigating these changes, offering solutions like payment initiation services and account information services that align with PSD2 requirements.

To successfully adapt to these regulations, businesses should seek advice from experts in financial compliance and payment security. These specialists can guide you through the process of implementing SCA and ensuring your payment processes meet the necessary standards.

Remember, while PSD2 presents challenges, it also offers opportunities for innovation and enhanced security in the financial services sector. By embracing these changes, businesses can not only comply with regulations but also improve their service offerings, enhancing customer trust and satisfaction.


MAS offers guidance and support to ensure businesses meet PSD2 and SCA requirements, assisting in navigating the complexities and optimising payment processes. For more detailed information and advice, visit our dedicated page on PSD2 compliance.

For more advice like this, visit our blog page!



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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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