Voice of the Industry

Payment optimisation under PSD2: Merchants share their point of view

Wednesday 17 August 2022 08:53 CET | Editor: Irina Ionescu | Voice of the industry

Riskified commissioned a study by Forrester Consulting that examines the impact of PSD2 on European and UK merchants. The survey reveals that the road to full checkout optimisation is still long. Valérie Candau, Senior Content Strategist at Riskified, discusses the key findings of the study.

Long before it came into effect, PSD2 had been a topic of relentless discussion for payment professionals. After an extended ramp-up period, the revised directive is now fully enforced across Europe. Riskified decided to commission a new study  to examine the impact for online merchants. Conducted by Forrester Consulting and based on a survey of 207 decision-makers at organisations across Europe and the UK, the study reveals that nearly half (45%) of the ecommerce businesses still experience obstacles to their progress towards payment optimisation.

Online businesses are still struggling with PSD2

As many merchants continue to transform their payment flows to ensure compliance with the European regulation, the road to full checkout optimisation is still a long one. When questioned about their current state of business under PSD2, 26% of merchants declared that, as of now, they are only complying with the baseline requirements, while 19% said they are still trying to resolve numerous technical and integration issues relating to the rollout. 

In light of PSD2, 90% of the surveyed ecommerce merchants state that investing in new fraud prevention providers is important, and almost the same percentage wants to focus on offering alternative payment methods. These numbers suggest that if payment professionals believe in the innovative potential of the directive, most realise that several challenges still stand in their way, such as: 
  • Keeping their fraud rates low

  • Minimising customer friction

  • Solving the data transparency problem within the payments ecosystem.

3DS cannot stop fraud on its own

Fraudsters have always proven themselves resourceful and adaptive. While PSD2 is presumably making their lives harder, bad actors are very busy developing new attack vectors to bypass the strong customer authentication (SCA) security measures required by the new regulation. Despite expectations, 3DS proves itself ineffective at reducing fraud on its own - over one-third of payment professionals confirm that they see more chargebacks on 3DS authenticated transactions, negatively impacting their organisations’ overall fraud rates.

Worse yet, a large proportion of respondents revealed they experienced an increase in costs relating to fraud prevention since the regulation came into force. Excluding 3DS expenses, 43% confirm this, and of this percentage, 57% say their spending rose by 25% or more compared to pre-PSD2 budgets. 

These statistics seem to demonstrate that without a holistic approach to fraud management, 3DS alone is not always enough to deliver on the promise of solving the eCommerce costly fraud problem in Europe and the UK.

Exemptions are the royal road to optimising payments

The vast majority (89%) of respondents agree that implementing exemptions is at the core of their PSD2 strategy. According to a different source, transaction requiring SCA performs at an average 60% to 70% success rate. So, maximising exemptions is the only way to increase the approval rate. According to the Forrester study, 60% of merchants report that with exemptions, they prevent over half of their orders from having to undergo SCA.

Most of them (71%) rely on transaction risk analysis (TRA). Other exemptions that are commonly used include merchant-initiated transactions (MIT) and low-value exemptions.

Eliminating barriers within the payments ecosystem

Online merchants agree that implementing the tools and technologies to ensure compliance with the new directive has proven more complex than anticipated. The lack of data transparency and proactive support from their payment partners during the PSD2 rollout was a significant challenge and still is. Additionally, over 30% of respondents admit being hindered by third-party lock-in- not having the flexibility to choose alternative solutions can limit innovative freedom and affect performance. 

To optimise their payment flows under PSD2, ecommerce merchants want more openness from their providers and visibility into payments data. For 65% of respondents, transparency in processing fees would greatly inform their payment strategies. Better communication on overall market performance and other existing solutions would enhance the synergy between fraud prevention and payments optimisation.

Key takeaways

The overarching objective behind PSD2 was to make online payments safer. Beyond ensuring a higher level of security, PSD2 and SCA can be integrated into a more holistic approach to risk. With increased conversions, merchants and best-in-class players are incentivised to leverage exemptions. But better collaboration is needed within the ecosystem to eliminate barriers and provide more options for optimisation. 

Ultimately, PSD2 makes the entire ecosystem safer while boosting innovation. Ecommerce merchants have an opportunity to strike the perfect balance between compliance, security, and user experience and gain a real competitive edge. Access the study to learn more.


About Valerie Candau

Valérie Candau is a Senior Content Strategist at Riskified, with a focus on EMEA. In this role, she addresses audience key challenges by crafting compelling, data-driven stories on eCommerce, online fraud, and payments. A subject matter expert specializing in the fintech niche, Valérie closely follows the disruption brought about by regulatory changes, new technologies, and business models that are currently shaking Europe's payments ecosystem.



About Riskified

Riskified is on a mission to empower businesses to realize the full potential of ecommerce by making it safe, accessible, and frictionless. We have built a next-generation platform that allows online merchants to create trusted relationships with their consumers. Leveraging machine learning that benefits from a global merchant network, our platform identifies the individual behind each online interaction, helping merchants—our customers—eliminate risk and uncertainty from their business. onboarding us. See www.riskified.com.

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Keywords: PSD2, regulation, regulatory sandbox, ecommerce, fraud prevention, online payments, cross-border payments, cross-border ecommerce, merchants
Categories: Fraud & Financial Crime
Companies: Riskified
Countries: Europe
This article is part of category

Fraud & Financial Crime


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