Standing out in a post-PSD2 world

Chris Thomas of Emailage shares his view on how to be a game changer in the post-PSD2 world with the right risk assessment, and an ecosystem of trust

As the holidays approach, merchants and financial institutions alike are working feverishly to complete preparations before the busy shopping season begins. However, the introduction of new payments and security regulations in Europe are making this prep work more complex than it’s been in the past. Further complicating matters for retailers and creditors, ecommerce sales are expected to rise up to 13% generating over USD 13 billion in sales worldwide in 2019 – and this rise of revenue can also be expected to attract a rise of fraudsters as well.  

Europe’s revised Payments Services Directive, or PSD2, requires that transactions over EUR 30 use multi-factor authentication such as a combination of password and PIN or a code generated by SMS or a smartphone app. Financial institutions and payment processors must now require these security measures for CNP transactions, such as those initiated during the ecommerce purchase process. Although PSD2 is ultimately designed to protect both consumers and banks, the new authentication requirements have added friction to the customer journey.  

In this age of instant gratification, customer experience is king and organizations must stand apart by offering a frictionless purchase process. Fortunately, fighting fraud and reducing friction are no longer antonyms of one another and there are steps that businesses can take to prepare for this challenge today. 

Moving away from static data 

First and foremost, on the road to reducing friction and boosting revenue, is approving your best customers. This is, of course, the goal of any measure retailers take to fight fraud. However, traditional risk assessments are falling short because they rely on the consistency of static data points such as name, phone number, or physical address to determine risk. When this data is compromised, these checks are no longer accurate. Inaccurate risk assessments result in good customers who may have simply moved or changed phone numbers going through unnecessary manual checks which frequently result in abandoned transactions or worse, fraudsters slipping beyond checks to make illegitimate purchases with otherwise good customer information.  

Striking the balance between stopping fraud and reducing unnecessary friction means organizations must shift from relying on internal blacklists and static data points to maximizing approvals through advanced analytics. 

Prevention through community 

How can organizations overcome these limitations and reshape their fraud strategy? The first step is to implement a fraud strategy that maximizes approvals, boosts revenue, and stops fraud before it hits your system. By partnering with a vendor that uses risk models built with machine learning that can accurately predict risk and detect attack patterns. These models must be updated regularly to account for new fraudster tactics and trends. 

In lieu of static data points and prepopulated blacklists, use dynamic digitally derived data points like email addresses, IP addresses, and behavioural biometrics. The strongest data is globally sourced from multiple industries and businesses, sharing confirmed and suspected fraud from all around the world. Organisations that are able to successfully branch out and utilize data outside of their internal detections means they’ll be able to accurately predict whether a transaction is fraudulent or legitimate before the transaction is processed. 

Organisations that are able to successfully ensure low fraud rates can actually request to be exempted from some of the rules and regulations surrounding Strong Customer Authentication (SCA) and PSD2, helping them to further reduce the friction their consumers encounter during transactions. Additionally, there are strong brand benefits associated with being exempt from the regulations, because customers will know that these businesses have been able to drastically reduce their instances of fraud. 

Fostering trust 

Retailers and banks alike can stand head and shoulders above their competition this year by taking advantage of advanced digital identity verification methods, machine learning, and globally sourced dynamic data to stop fraud before transactions are completed. In doing so, they’ll also boost revenue by automatically approving the best customers and providing exemplary customer experiences. 

In the first post-PSD2 holiday season, there will be winners and losers across both the ecommerce and financial landscapes. Join the Paypers and Emailage on November 21, 2019, for a free webinar and panel discussion on how new regulations and advanced analytics will play a key role in businesses’ success in stopping fraud losses, preventing regulatory fines, and fostering an ecosystem of trust for their customers. Reserve your seat today. 

About Chris Thomas

About Emailage