Antoine Grimaud, CEO of Payplug, shares with The Paypers what the current status of PSD2 in Europe is, and how companies can capitalise on it to increase cross-border payments acceptance.
Even though PSD2 has applied for more than three years now, it is still reshaping the European ecommerce landscape. The varying degrees of market penetration by third-party providers and development delays on the part of issuers have resulted in different implementation schedules, which have had visible impacts across Europe.
Source: Payplug (ex Dalenys) figure, Sept.–Oct. 2022
The last milestone in the timeline of SCA implementation was the retirement of 3DSv1 by card schemes on 15 October 2022. As this map shows, the switch did not majorly impact the card acceptance rate, as the European market was well-prepared. At the global level, we can observe a small decrease (from 84.9% to 84.3%), explained by monthly seasonality effects. Portugal, Spain, and Germany are exceptions where the switch resulted in a major increase in the card acceptance rate.
One might think the end of 3DSv1 was the final step in SCA deployment, but the changes do not stop there: issuers and acquirers are now required to support, implement, and use 3DSv2.2. Among its other features, this version supports delegated authentication, meaning issuers can allow a third party to do the authentication (a merchant, an acquirer, or a digital wallet, for example).
PSD3 could be formalised and adopted in the next three to five years, making payments faster and safer while aligning better with the EU’s legal framework.
There are many strategies that merchants can adopt to leverage their performance in the context of PSD2. I see three different levels: the first is to fully understand the workings of this new regulation and learn how to adapt to them – for example, by taking advantage of exemptions such as recurring payments, small amounts (< EUR 30), trusted beneficiaries, and Transaction Risk Analysis (TRA).
Merchants can also use tokenization to offer zero friction payment modes such as one-click payment or click-to-pay. Another way to avoid a drop in conversion is to retry transactions declined due to a technical failure or a purchase flagged by the issuer. In the first semester of 2022, the error rate on the 3DSv2 was 11.55%. Such transactions can be lost without a smart routing engine.
The second challenge for merchants, one which may seem obvious but is not easy to achieve, is to reduce or maintain their fraud rate at a low level. Given a top goal of PSD2 is to reduce fraud, they need to pay closer attention to this and conduct real-time risk analysis for each transaction. Effective TRA solutions encourage frictionless authentication while providing a high level of security, ultimately resulting in fewer chargebacks for e-merchants.
Finally, the ultimate level to perform in the PSD2 context is to have direct access to the issuer data. That is what we can offer at Payplug as part of Groupe BPCE, the number 2 banking group in France and largest Visa issuer in Europe.
As both a payment service provider and acquirer, Payplug covers the entire payment value chain: acquisition, processing, and acceptance. Moreover, our affiliation to the Groupe BPCE gives us a privileged access to BPCE cardholders’ transaction data, which represents 20% of consumer transactions in France, according to Groupe BPCE figures from 2021.
Our unique position on the market allows us to better understand the issuers' expectations and decision logic in the context of PSD2. We are able to make more relevant recommendations (frictionless vs strong authentication), and exchange the right data to maximise the acceptance rate.
We have integrated the issuer logic into our risk assessment models, allowing us to create solutions that improve our merchants’ performances, such as FastPass. With this technology, any TRA analysis conducted on the merchant side is given an immediate response from the BPCE issuer, guaranteeing a maximum share of frictionless payments.
Our client Veepee, for example, has become 45% more frictionless (or 9% in conversion rate) with FastPass on transactions made by BPCE customers, without increasing its fraud exposure.
To efficiently accept cross-border payments, global merchants will most likely have a multi-acquirer setup and be connected to multiple PSPs. This allows them to offer relevant payment methods, depending on the buyers’ expectations and the regulatory landscape of the country in which they operate, as well as benefit from lower processing fees.
While a global payment strategy has benefits, there are risks in not taking into account national idiosyncrasies. Merchants must adopt a targeted country strategy, comparing payment providers and identifying those offering the best tools to optimise their conversion rates.
If they are using a payment orchestration platform, they can set up routing rules based on risk factors, location, and platform-specific data to route each transaction to the most relevant PSP (that which maximises acceptance and conversion rates).
In the end, every global merchant can level up their payment performance regardless of their entry point (API, Payment Facilitator, or payment orchestration platform), even if they multiply their payment providers. Our goal is to support them by adapting their payment mix country-by-country and offering granular analysis of fraud cases and payment data across Europe.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Antoine co-founded Payplug in 2012. He holds an engineering degree from the École Polytechnique and an MBA from Harvard Business School. In 2022, Payplug joined forces with Dalenys under a new brand name: Payplug.
About Payplug
Payplug is the French payment solution designed for merchants, e-merchants of all sizes, and fintechs. Our mission is to redefine payment performance in order to help the most demanding players in the market realise their business ambitions faster in France and Europe.
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