Forter psd2 checklist 112420 v1.2.pdf
FORTER
Getting ready for PSD2
The revised Payment Services Directive (PSD2) is a European directive that aims to create a more competitive payment landscape and ensure consumer protection across payment types. However, PSD2 also introduces challenges for merchants with its requirement of Strong Customer Authentication (SCA). This requirement seeks to reduce fraud, but also introduce additional friction as a result.
To deliver an optimal experience to all users and maximize revenue, businesses need to ensure that they prepare accordingly for PSD2 – meeting full PSD2 compliance, minimizing friction, and ensuring a seamless customer experience.
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+7.4M Transactions Approved
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+16.3K Verification Required
9.61K MFA Success
91.95% Total Approved Rate
82.97% MFA Success Rate
PSD2 & SCA: an overview
One of the key components of PSD2 is the requirement of Strong Customer Authentication (SCA) that applies to all online payments within the European Economic Area – unless a relevant exclusion or exemption applies.
It introduces additional friction in the customer journey by requiring that businesses use two (out of three)
Knowledge: Something
the customer knows (e.g. password)
Possession: Something the customer has or owns (e.g. phone)
Inference: Something the customer is (e.g. fingerprint, facial recognition)
SCA and the other requirements under PSD2 will go into effect on December 31st 2020, and businesses will need to prepare accordingly.
How does PSD2 affect my business?
If your business currently operates in Europe (or if you’re planning to operate in Europe in the near future), then PSD2 and its Strong Customer Authentication requirement will likely apply to your business, and you’ll need to meet PSD2 compliance.
Adding friction hurts conversions and overall revenue
SCA adds friction to the purchasing experience and customer journey, which will potentially increase cart abandonment, reduce revenue, and provide your users with a poor customer experience.
Lowered Approval Ratio
Merchant approval ratios can drop as issuing banks might opt to decline particular 3DS transactions to avoid the liability shift for fraudulent transactions.
Impacts on Fraud & Risk
Processing fraudulent transactions with 3DS can result in increased service chargebacks, entering chargeback monitoring programs, and a drop in approval ratios due to a bad reputation with the banks.
Here are some key action items for your business to ensure that you’re on the right path for PSD2:
Determine if your business is (or will be) impacted by PSD2
Figure out if your business falls under the scope of PSD2 and its requirements. If your business uses a European acquiring bank and sells to European customers, then your business is likely affected.
Develop a plan for how your business will meet PSD2’s SCA requirements
Ensure that your business has a plan to meet and comply with PSD2’s SCA requirements by the December 31 2020 deadline. You will want to find a tool or strategy to maximize the usage of exclusions and exemptions to provide the optimal customer experience to every customer.
Detect PSD2 exclusions
Identify transactions that are excluded from PSD2 so your business can avoid usage of 3DS authentication when possible.
Maximize PSD2 exemptions
Leverage an accurate fraud prevention solution with an exemption mechanism, with a focus on TRA (Transaction Risk Analysis) exemptions, in order to avoid 3DS when possible.
Have a system in place to handle failed transactions
When transactions are declined due to an issuer or acquirer refusing the exemption request, always attempt to authenticate the transaction via 3DS and try to re-process the transaction. Have a decline recovery mechanism to recover legitimate transactions that have been wrongly declined.
Align with your PSPs and acquirers
Work with your PSPs and Acquirers to understand their plans for PSD2 – how they’re going to manage Transaction Risk Analysis (TRA) exemptions, what their current portfolio’s fraud rate is, and more.
Make sure you have a pre-authorization fraud prevention solution
Pre-bank authorization fraud screening enables your business to decline fraud upfront and avoid unnecessary authentication and authorization costs, minimize friction under PSD2 to maximize conversions, and more.
Be ready to closely monitor closely your data
Data is critical to manage and optimize payments. Your business needs to know how your processors handle exemption & exclusion requests, your approval ratio with and without 3DS, what your 3DS abandonment rate is, etc.
Align your SCA provider with your fraud prevention solution (if necessary)
Both authentication and fraud prevention solutions leverage data about your business to protect it from fraud, and they also both impact your customer experience. Make sure that they’re in sync for optimal accuracy and performance.