If you look at payment providers and online stores these days, there is a lot of commotion going on. The reason is the EU Payment Services Directive 2, which recently was named just PSD2. From 14 September, the majority of all online transactions will require what is known as strong customer authentication (SCA), such as via 3D Secure.
Until now: Convenience at a higher risk
Did you notice anything? Precisely! Until now, 3D Secure was as rare in online shopping as a free parking spot in the city on a Saturday, not to mention other SCA processes. There is an obvious reason for this: just like the lack of parking spots, the previous processes disrupt the shopping experience due to the lack of convenience. And because an online shopper leaves the shop much faster than an irritated parker leaves the city, most online retailers usually do not bother with using these processes. This means that they consciously take the risk of a payment default in order to keep convenience levels high. From September, this will be a breach of the PSD2.
From September: Convenience will suffer
So what does this mean for the other big pay day in eCommerce that is Black Friday on 29 November? We believe that even if the technical implementation of strong customer authentication has been completed for all payment processes by September, the convenience will suffer for a start, perhaps with the exception of the UX king’s process from Silicon Valley. Be it because the processes are not yet designed 100% for convenience, or because the average customer has never heard of strong customer authentication. One solution for ensuring convenience could be payment on account and direct debit. Because unlike many other processes, both are exempt from strong customer authentication. With direct debit, this was only recently confirmed by the German Financial Supervisory Authority (BaFin) after the European banking supervision caused an uproar.
Invoice and direct debit require risk management
For this reason, you should in any case take a good look at your payment mix. This includes taking an inventory of the payment methods currently offered and the relevant conversion, as well as their shares in total sales. If it is then determined that the majority of purchases are currently made using payment methods that are affected by the PSD2 and strong customer authentication, additional alternatives like payment on account and direct debit should be considered. Because if these processes are offered, the experience of our clients in the DACH area has shown that this will be balanced out by much more than 50%.
Of course, you mustn’t forget to protect yourself against the increased risk of payment default with payment on account. This is precisely why now is the right time to talk about appropriate risk and fraud management: so that Black Friday remains a pay day this year too!
Contact us! Johannes Antoni & Thomas Nöding (Co-Author)