“3DS2 transaction requests have doubled” - staying ahead of PSD2 with Marco Conte

Does PSD2 impact your business? The short answer for most online businesses should be ‘yes,’ as whether you are in the EU or not, the new regulations will cause payment environments to shift across the world.

However, many merchants seem to be unaware of the PSD2 impact. According to our Online Fraud & Payments Survey taken in August 2020, around a quarter of online merchants in Germany, Spain and France, and almost half in the UK, wrongly thought that PSD2 would not affect them.

We speak to Marco Conte, payments expert and co-founder of Payment Universe, to shed some light on the current PSD2 situation and give advice on how to stay ahead of ongoing rollouts in 2021.

What’s the current situation facing European merchants around PSD2?

Each country has a different approach: The situation is complex, as every country has a different enforcement date, transition plan, and approach to soft declines. The new SCA enforcement date in the UK is 14 September 2021, whereas Germany started a phased approach from last January, and France since last October. These localised approaches make it difficult to keep an eye on changes, especially for Pan-European or US merchants operating in Europe.

Merchants were overwhelmed in 2020: The pandemic had a massive impact on PSD2 implementation last year, changing customer behaviors and overwhelming lesser prepared businesses. Remote working was an added barrier, making it harder to communicate with teams and action necessary changes.

Pressure on regulators to further extend deadlines: Many European merchants and payment associations requested additional time from national regulators to prepare further for SCA changes. Just look at the UK postponing the deadline until September 2021.

Meanwhile, 3DS2 transaction requests are increasing in Europe: 3DS2 transaction requests have been increasing in Europe, and have actually doubled in comparison to November 2020 according to data from card schemes (Mastercard and VISA).

Have you noticed any trends around 3DS roll out and issuer behaviour in Europe?

Growing gaps between issuer readiness country-to-country: Some countries such as Spain and Italy are currently behind with implementation of 3DS2 compared to the rest of Europe, with authentication rates below 50%. In comparison the UK is well ahead, with authentication rates at 85%. In the UK, we see that for the majority of issuers, authentications initiated with 3DS2 outperform 3DS1 which is great news!

Technical errors persist, causing failed transactions: The increased amount of 3DS transactions in the first weeks of January caused technical errors to emerge in some countries, and even if there has been a decrease, these are persisting. We have seen some technical failures due to time-outs on Access Control servers causing higher declines, in some cases declines reached 5% on 3DS2, which is massive. These errors caused failed transactions to increase in some countries like Italy.

Issuers are implementing soft-declines: We have seen several issuers declining non-authenticated transactions above the thresholds introduced by the local enforcement transition plans.

What do you think are the key challenges merchants are facing around the PSD2 and 3DS roll-out?

Minimizing customer abandonment: One way to manage customer abandonment is by identifying when to turn on 3DS2 or fall-back on 3DS1 based on singular issuer performances. Exemptions haven’t fully come into play yet, but exemptions like TRA (transaction risk analysis) requests will be key to avoiding customer abandonment going forward.

Making sure transactions are compliant: Last year many merchants had to rethink their entire payments systems. This was a slow and arduous process for merchants working closely with their PSPs and gateways to update API integrations. This year, it’s important to ensure that transactions are compliant. This doesn’t necessarily mean that all transactions have to go through 3SD2 or SCA, they just need to be flagged and submitted.

Leveraging exemptions: If you are going to leverage exemptions, you need to be ready for issuers to disagree with exemption requests sent straight to authorization. Issuers may soft-decline, request you restart the transaction flow and reinitiate strong customer authentication.

Are there any specific issues which you think merchants should pay attention to?

App-based transactions are suffering: Successful authentication rates are low at the moment for apps compared to browsers. Merchants should join forces with their 3DS providers and issuers to resolve these cases.

Technical mapping errors: Merchants, with their PSPs and acquirers, should pay attention to how authorizations are being requested. We have seen some transactions failing due to technical mapping errors which could have been easily avoided.

What’s your advice for European merchants to manage their strategy in 2021?

Develop your business’ understanding & knowledge around PSD2: SCA, 3D Secure 2 and PSD2 are topics that are now part of every payment discussion for merchants and PSPs. It’s really important to keep up with the constant changes and updates. Build this knowledge in your team as you will need to build a strategy around it.

Formulate a comprehensive strategy: PSD2 will impact all areas of your business. It could disrupt customer experience, communications, terms & conditions, legal conditions, operations - the list goes on. You need to formulate a business-wide strategy and keep ahead of the potential ripple-effects.

Keep an eye on your data: Be sure you know what is happening globally, and have an idea of how to mitigate any upcoming issues by using an enhanced data monitoring framework. Some merchants have already taken these steps and it’s a huge help.

To learn more about PSD2 authentications & exemptions strategy in 2021 from Marco Conte, watch our recent webinar on demand.

(Data sourced from Payment Universe based on merchant performances and payment scheme updates)