PSD2 could drive fraud to non-EU payment markets as biometric authentication increases

Most companies are not prepared for the Europe’s new and revised Payment Services Directive (PSD2), but that will not stop stricter requirements for fraud prevention from driving fraud to other regions, such as the U.S., according to a report from iovation and Aite Group.

PSD2: Advent of the new payments market in Europe” analyzes the consequences of the new rules, which come into force in September 2019 and require service providers operating in the European Economic Area to provide strong customer authentication (SCA) and third-party access to bank accounts, for the global payment services market. A recent survey by Mastercard indicates that only 25 percent of online merchants in Europe are aware of their SCA responsibilities under PSD2, that 14 percent currently support SCA, 28 percent expect to meet the September deadline, and 24 percent have no plans to introduce SCA, according to the announcement. Mastercard also predicted last year that PSD2’s SCA requirements will drive a rapid increase in consumer biometrics use.

“The zeitgeist of regulations with extra territorial effect like GDPR continues with PSD2. This will have long-standing operational implications to companies wherever they are based,” said iovation Compliance Manager, Mark Weston. “The merchants that succeed post PSD2 will be those that make consumer authentication as effortless as possible through methods like ‘invisible’ device-based authentication and biometrics. And with the likes of Facebook and Google becoming payment processors, merchants are going to have to compete with an ever widening marketplace.”

The SCA requirements imposed by PSD2 are for multi-factor authentication methods applied to all electronic transactions unless they qualify as “low risk.”

“Varying choices in the implementation of the SCA requirements on a country and individual bank level, differences in interpretation of the directive, and different timelines may create confusion that merchants have to navigate,” said Aite Group Senior Analyst, Ron van Wezel. “Businesses should be sprinting to get their house in order.”

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