Following delays and postponements to the implementation of PSD2 over the years, 2021 finally heralded progress, albeit phased, for payment regulations coming into force in the EU. Despite some remediable hiccups with SCA (more on the causes and solutions later), the European Banking Authority (EBA) highlights in their latest report that there has been significant progress in PSPs complying with Strong Customer Authentication in e-commerce, along with a marked reduction in fraudulent online payment transactions. Although we're still a long way off from being able to fully analyse the successes or challenges of PSD2, for now, at least, we see that despite the staggered introduction of the directive (the UK has postponed until March 2022) and the global difficulties experienced as a knock-on effect of the ongoing coronavirus pandemic, there are some positives. By implementing the system elements, one of the main aims of preventing fraud has progressed with some impressive results. First, let's focus on this achievement.
Fraudulent transactions are decreasing
The EBA report on the readiness of PSPs (payment service providers) highlighted that in the period June 2020 – April 2021, the value of fraudulent transactions across the EU decreased by approximately 50%, from 0.12% to 0.06% for issuing PSPs and by approximately 40% from 0.17% to 0.10% for acquiring PSPs.
This success is in part down to SCA (strong customer authentication) compliance by many issuing and acquiring PSPs, based on previous EBA opinions set out in 2019 (EBA-Op-2019-06). For the period September 2019 – April 2021, the key indicators are encouraging:
- 99% of EU merchants are able to support SCA.
- 94% of all payment cards in the EU are SCA-enabled.
- 82% of all PSUs (payment service users) are enrolled into an SCA solution.
- 92% of e-commerce card-based authentication requests reported by acquirers are compliant with the SCA requirements.
- 87% of initiated e-commerce card-based payment transactions reported by issuers are compliant with the SCA requirements.
While the data is certainly heartening, highlighting the reduction of fraudulent transactions in e-commerce and the confirmation that the technical systems infrastructure is mostly already in place, the initial conclusions also underscore that there are still some PSPs lagging behind on some, but not all, indicators. Where do the faults lie?
Transaction declines are still high
Even with the decrease in the volume and value of instances of fraud, according to CMSPI data for January – April 2021, transaction declines have been high in some countries. Data on challenge rates show that Denmark, Belgium and Norway had a particularly high volume, where the card issuers challenged customers and declined the authentication method received. Their findings on the challenges showed issuers were not accepting authorisation stand-ins, they lacked 3D Secure (3DS) enrolment, incoming merchant data was misinterpreted, and their ACS (Access Control Server) partners were creating timeouts and abandonments.
Customer conversion rates are a worry to PSPs
That genuine customer conversion rates should be affected is a worry to all PSPs, however, this is by no means an indictment of PSD2. The initial data is encouraging, and there's no reason why it can't get any better. This is where fintech companies such as Nethone become prominent players in aiding the authentication process and increasing customer conversion rates. Oh? Of course, there are many reasons and benefits for financial institutions to cooperate with fintech companies – a key example is IDnow fintech working with Commerzbank to increase conversion by 50% for customers sought and eventually downloading their app. The potential to make SCA work exists, there simply needs to be a willingness on all sides for cooperation to make it work.
As with any major new financial systems implementation, there is always a degree of expectation that things may not run smoothly in the beginning, regardless of the best-laid plans. That's natural. But the important thing is to have the technical systems in place, the training available to the merchants providing payment services, and of course, to allow fintech companies to aid in the seamless implementation of fraud prevention solutions and customer friendly systems. We're closer to the beginning of the PSD2 process than the end, but things can only improve with the right companies pushing forward the positive changes in open banking.
If you liked this article, and would like to prevent similar fraudulent activities occurring in your business, Nethone's anti-fraud solution is perfect for you.