When you make a purchase as a consumer, the process is usually pretty painless. You pull out your credit card, hit a few buttons, and the payment goes through.
What most consumers don’t see is that behind every transaction is an incredibly complex payment ecosystem. There’s the merchant, the merchant acquiring bank, the issuer, the issuing bank, and the card brand — and every one of those parties is sending information about the transaction along the rails between them.
We just passed an important milestone toward making that level of information both more robust and more secure: on March 14th, 2019, businesses covered by the EU’s Second Payment Services Directive (PSD2) were supposed to have APIs and specifications in place for testing.
As we’ve discussed, implementing PSD2 isn’t without its challenges. But at the core of PSD2 is the idea of open banking, which should lead to more innovation in the payments world, and have friction-reducing benefits that merchants should find exciting.
In a recent podcast, Karen Webster, CEO of PMNTS.com spoke with our CEO, Rob Eleveld, about how all the players in the payments ecosystem will need to work together as the September 14th deadline for PSD2 compliance nears, and what role merchants in particular will have.
Increased customer friction will have uneven impact
We’re living in an instant gratification world. If we see something we like, we want it right now — and we don’t want to go through a lot of hassle to complete a transaction.
No one in the payments ecosystem wants to see more friction in the transaction process, but a few of the players will be hardest hit if poorly implemented PSD2 processes increase rather than reduce friction. Card brands and issuers might see customers changing payment methods, and merchants may see an increase in abandoned carts that come about as a result of friction in the transaction.
Because of this, we’re likely to see the biggest pressure to use PSD2 to reduce friction coming from the merchants, because that’s who has the closest relationship with the consumer — and therefore they’re going to feel the brunt of consumer frustration.
Increasing the amount of information shared as part of the strong customer authentication requirement will help reduce that friction, but everyone in the payments ecosystem — from the merchants and card brands to the banks — will need to work together.
More data means less friction
Currently, under 3D Secure 1.0, limited amounts of data are sent over the rails during a transaction: a name, transaction amount, and the occasional shipping address, phone number, or IP address.
With 3D Secure 2.0, the huge increase in data flowing up and down the rails means merchants are going to be able to make more confident decisions when it comes to automatically approving transactions, even if they’ve never seen a particular customer in their system before. Name, email address, phone number, IP address, physical address, and more will be a standard part of the data set, giving merchants even greater confidence, and reducing the friction for good customers.
At the Ekata, we expect to see a lot more fidelity in the way that transactions and accounts are scored because of this increase in information. The machine learning models that we and other data vendors use to score the risk in a transaction will only become more robust under 3D Secure 2.0, meaning that merchants will be able to approve good transactions more quickly while adhering to the strong customer authentication guidelines under PSD2.
All this won’t come about naturally. There’s a lot of hard work that still needs to be done, and merchants need to be thinking carefully about how this will affect them.
Listen to the complete interview with Ekata CEO Rob Eleveld to learn more about what your company needs to be doing to prepare for PSD2.