Callcredit Blog

E-commerce: How could you use PSD2 to your competitive advantage?

Fraud & Verification General

2019 TransUnion strategic planning

The 2nd Payment Services Directive (or PSD2 for those in the know) is on it’s way. It’s arrival may have been delayed with some retail organisations looking to push the date back due to a lack of readiness, but the regulation is coming and retailers need to be prepared.

If you don’t know what PSD2 is or how it could impact e-commerce businesses then have a quick look at our blog that explains what it is or alternatively IMRG’s blog on how retailers can prepare for it.

PSD2 represents a big change in regulation and a big challenge for retailers to get right. In recently reported testing, merchants have seen abandonment rates of over 40% during SCA (Strong Customer Authentication) 3D Secure phase of the journey. This suggests that a competitive advantage can be gained for retailers who can be the first to adopt PSD2 and get the process right.

What, then, are some of the areas, outside of technical and operational work, that retailers should be considering to help manage themselves, their customers and their payment partners through this change in regulation?

Upfront communication with customers – proactive management of drop out rates

  • Most online consumers are likely to have established shopping habits. They are likely to make regular purchases from a set of retailers that they trust and have a relationship with. These shops are likely to revolve around such things as clothes, groceries and gifts for birthdays and Christmas. For one-off or larger purchases, such as a new sofa or TV consumers, are more likely to research the product, shop around and potentially buy from a retailer they have never bought from before.
  • For existing customers PSD2 is going to be an important piece of legislation that businesses need to get right. It will require clear and effective communication about the changes to tried, trusted and familiar customer journeys and what this means for the consumer and the business.
  • It is better all round if this happens sooner rather than later and that businesses take learnings from the implementation of GDPR. With GDPR we saw a lot of confusion around relevant and timely communication with consumers. We saw retailers panicking to protect the size of their database, bombarding existing customers about their GDPR policy and what this means. Obviously the sheer volume of emails arriving in our inboxes meant it was difficult to cut through the noise.
  • There is a competitive advantage to be on the front foot with PSD2 and outlining from an early stage about what PSD2 is and signposting how it is likely to impact consumers when they are buying a product and how this piece of compliance is helping consumers. With dropout rates likely to rise when PSD2 comes into effect, investment needs to be made now into a clear and actionable strategy.

Hackers meet at a conference

Know your fraud rates

  • The Strong Customer Authentication (SCA) ‘journey’ will need to be enacted but not for all products or on all occasions. A key determining factor for retailers will be the particular fraud rate for a particular product. This will require insight and knowledge on fraud rates for each of your products, and the ability to manage and monitor these through a real-time fraud engine. You will then want to be able to influence these down to an appropriate level.
  • While the regulated entities (banks, PSP) will be driving a lot of the PSD2 requirements, they will not respond positively to fraud levels increasing as this will cost them money. As such, come September, a high number of chargebacks due to fraudulent activity may result in the requirement for more transactions be asked to stand up to SCA. Importantly, the reverse of this is also true: the better the fraud detection rates of a retailer will lead to the regulated entity viewing them with greater levels of trust and therefore require less ongoing proof of their fraud management capabilities, this could see a reduction in the number of transactions being required to have SCA applied and the abandonment rates that have been seen would then be removed.
  • Knowing and minimising fraud rates is a real potential win.

The changing face of fraud – fraud professionals have seen this before but are retailers ready?

The SCA element of PSD2 is arguably a good thing. Everyone keeps telling us that fraud is on the increase, TransUnion included, so anything that can be done to shut a particular fraud door is a positive progression. But this will not completely remove fraud. One reason that fraud is on the increase is that it pays for criminals to undertake it. As such it is likely that fraudsters will look as PSD2 as a case of one door closing and another door opening.

Fraud is like energy, it can’t be destroyed, it just changes shape. As such retailers will need to be ready for the shift in fraud that will take place. If the SCA is required for larger or higher risk products, it is likely that retailers will see and increase in fraudulent activity on smaller ticket items (that slip under the thresholds). Fraudsters may take this as the moment to use some of the synthetic identities that have been built. If SCA drives a change in fraud patterns, are you ready for this or other possible shifts?

Next steps

As was mentioned in a previous blog about how data insights can help to grow the food sector, data has always been important and remains increasingly so for all organisations including retailers of all size. The increasing number of digital means of engagement and consented data gathering gives greater opportunity for all organisations to drive intelligence lead business benefit. The potential is massive when done right and with the right supporters and partners.

Now is the time to ask yourself if you are well set and supported to take the opportunities that this change will bring?

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