The EU’s endeavor to promote innovation and safeguard consumers through a single legislative initiative is known as PSD2. More precisely, customer authentication and third-party access to user accounts are the two main areas that PSD2 would affect. The regulation will mandate stronger restrictions for online transactions with multi-factor authentication (MFA). Additionally, if users approve, third-party services may access accounts using an application programming interface (API) in order to improve customer service and innovation.
It’s critical for business owners to comprehend the standards and perform the required actions to guarantee compliance. With the implementation of the PSD2 rule in 2019, the payment industry hopes to foster innovation and competition by welcoming new players like fintech companies.
Strong authentication for digital payments is required under PSD2 compliance, which means that users must use at least two of the three factors—something they know, a thing they have, or something they are—to confirm their identity.
PSD2 and SCA Compliance: Essential Information for Businesses
To make sure that everyone follows the same compliance procedures, there are a few essential components to becoming compliant whether working or operating within the EU. Finding out which businesses can comply with PSD2 is the first step.
Does PSD2 Compliance Apply To Your Company?
Determining whether your company needs to comply with PSD2 and SCA is the first step in the PSD2 compliance process. This is applicable to companies operating in the EU or dealing with clients based there.
Take these actions to find out if PSD2 and SCA apply to your company:
Location of Operations: To begin with, determine if your company is situated inside the European Economic Area (EEA), which is made up of Monaco, the United Kingdom (United Kingdom), and all 27 EU members. All companies doing business in these regions must abide by the PSD2 regulations.
Clientele: The second thing to consider is your clientele. PSD2 and SCA must be followed if your company accepts payments from clients in the EEA, even if it is not based there.
Transaction Type: Assess the kinds of transactions that your company handles. PSD2 rules will be applicable if you enable electronic payments, particularly those made via mobile or internet platforms. This covers bank transfers, card payments, and some mobile payment options.
Speak with a Legal adviser: It’s always a good idea to get advice from a legal adviser or other expert who is knowledgeable about PSD2 and SCA legislation. They may offer a thorough examination of your company’s operations and business style, guaranteeing complete legal compliance.
The Impact of PSD2 on the US Market
Due to the goal of global security measure standardization by card issuers and merchants, the PSD2 law will have a few significant effects on US businesses.
Possible Rise in US Fraud
Since hackers might be less likely to target the EU due to increased security measures, one of the major effects could be an increase in fraud incidents in the US. For example, given security measures implemented under PSD2, fraudsters can no longer test fake cards; as a result, they may go to the US for these and other fraudulent activities.
EU Business Unit Compliance
Businesses operating in the EU should still anticipate that their European business units will adhere to PSD2 regulations, even if they are headquartered in the US. Additionally, US companies must give PDS2 compliance serious thought if a sizable percentage of their online traffic or clientele originates from the EU.
Put 3-D Secure Version 2 into practice (3DS2)
The payments sector was developing 3-D Secure version 2 (3DS2), a new authentication standard, while the EU was working on PSD2. Though PSD2 may not directly affect US organizations, they should expect to meet the security and authentication criteria stipulated by 3DS2, as the standard is intended to be adopted globally.
How to Get Ready for PSD2 and What It Means for Your Business
The procedures and actions you need to take to get ready for PSD2 will depend on the kind of business you run.
Put MFA into Practice
Since MFA is essential to PSD2, you should make sure that this feature is present in all of your platforms, services, and apps. This covers any merchant, the process, or digital banking service.
Examine Your EU Activities
You should assess your operations for PSD2 compliance if you have business units in the EU or if you get a lot of traffic from that region. This entails putting in place the MFA mentioned above in addition to complaint response procedures that comply with PSD2.
Boost Your Anti-Fraud Activities
In the event that your US-based company deals with card-not-present fraud, you should be ready for a potential spike as a result of PSD2 security measures that will probably make such crimes more difficult in Europe. Don’t forget to perform penetration testing and install robust firewalls. Getting PCI compliant will also aid in your readiness.
Stay Knowledgeable And Inform Your Clients.
Informing your customers of changes is crucial. They must be aware of the need for additional authentication procedures and how to carry them out. Usually, this is accomplished by updating the terms and conditions, privacy policy, or occasionally both. Giving current clients advance notice of the changes fosters trust and motivates them to make additional purchases.
Final Thoughts
For organizations, adhering to rules and laws might be complicated. Nevertheless, it is worthwhile to invest the effort necessary to comply with these regulations and gain access to particular economic zones.
With the implementation of PSD2, financial innovation is expected to rise in the EU, accompanied by increased consumer protection. To ensure you have all the necessary steps in place for PSD2 compliance, think about collaborating with an expert compliance partner, depending on the services you provide and the sources of your clients.
