PSD2: What is the merchant experience?

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Global identity verification and fraud prevention provider Ekata, explore the findings of a survey in which they interviewed top global merchants on their experiences surrounding PSD2.

The revised Payment Services Directive (PSD2) went into effect this past January 1st for many countries across Europe. The payments ecosystem had been hard at work for the past year setting up their compliance for the new regulation. Now that the time has come to see the interactions play out, we wanted to investigate the merchant experience throughout 2021.

For merchants transacting in real-world goods, the online channel was generally a small subset of their total revenue. Once Covid-19 hit and all the shopping behaviours of 2020 impacted their business, most merchants became digital-first by necessity. This also means that understanding digital risk, fraud and PSD2 has happened incredibly fast for most companies.

The opportunity to lead in customer experience and trust

PSD2 Strong Customer Authentication (SCA) provides rich opportunities for everyone in the payments ecosystem to strategise and win long-term:

  • Issuers want to stay “front of wallet”. Thus, it’s in their best interest to focus specifically on the customer experience and reduce any friction experienced by the consumer that could lead to an abandoned transaction.
  • Acquirers/PSPs want to develop new fraud capabilities (real-time fraud checks, Transaction Risk Analysis (TRA) etc.) and differentiate against an increasingly commoditised space.
  • Merchants want to increase conversion and do so by building frictionless experiences that keep the consumer returning to make additional purchases.
  • Everyone wants increased authorisation rates because, ultimately, this key business signal is tied to the bottom

The Survey

Ekata and Allyiz  (formerly STRATGranat) interviewed top global merchants on their experiences in the first months of 2021 to understand their strategy around PSD2, and learn how they are actively monitoring and assessing SCA performance to drive better customer experience and trust.

Of these merchants, 90% were truly global and 10% were spanning various European countries. In order to ensure good SCA knowledge, we focused on people in Payments roles.

Key Findings

Most merchants are taking things one month and one country at a time. 85% of them shared their key business metrics with us:

  • Less than 50% of merchants are actively monitoring performance, mainly because of a lack of data available from their providers.
  • Digital merchants are monitoring their transactions the closest and have the detailed insights in how different countries and issuers are performing.
  • Low value and TRA exemptions together make the bulk of exemptions applied.

The 3DS version landscape is highly fragmented across the payment ecosystem in all European countries and across the global merchants.

  • 12% of merchants are restricted on which version of 3DS they can use due to a provider or technology limitation
  • This limitation also translated to an inability to leverage exemptions for many merchants, even where 3DS 2.0 (and above) is being used.
  • Only four merchants are not leveraging 3DS 1.0 and only five are not leveraging 3DS 2.0 (and above) at all.

You can access our full study here to understand in more depth what global merchants are seeing in the market. The ultimate temperature check on all the effort undertaken by the various payments players in the ecosystem.

Ekata are a sponsor of the Future Identity Festival 2021, a hybrid experience taking place November 15th & 16th.