The recent wave of digitalization has offered all sorts of advantages to digital users. Simultaneously, it has increased the chances of online scams and fraud. PSD2 is the second iteration of the PSD. It is essential to understand the significance of psd2 SCA requirement to ensure the absolute security of the payment processes.
What is PSD2?
PSD or Payment Service Directives refer to the Payment Services Directive. It was a European Directive that the central authority introduced in the year 2007.
The purpose of the directive was regulation of the payment service providers (PSPs) and the payment services. It inspired a massive development on the pan- European participation and competition related to the payments industry.
And the directive clearly established that the banks cannot continue with e monopoly of facilitating the secured form of online transactions. The latest version of PSD is PSD2 and it aims to change the following:
- operational relationships
- scope of profitable business models
- account data of the customers
The enforcement of the law has helped the European Commission to foster better customer protection, innovation, and improved security of online payments.
What is SCA?
SCA denotes Strong Customer Authentication. It is the process of authentication that depends on the application of two or more elements, including:
- The knowledge signifies something that only the payer will know. For example, PIN, passwords, secret questions or facts, and passphrases.
- Inherence signifies sonneting that the payer is. For example, it can be a fingerprint, facial recognition, DNA signature, voice patterns, and even iris format.
- Possession signifies something that only the payer will possess. For instance, mobile phones, smart cards, smart watches, or some tokens.
The payer has to provide at least two of the three forms of authentication to allow the complete processing of payment.
How does PSD2 improve customer experience?
The new and improved directive aims to improve the customer experience without compromising the layers of struct authentications and verifications.
Benefit #1. Improvement in customers' convenience
PSD2 is the ultimate instance of customer- centered approach to authentication.
- A client gets comprehensive control of the financial assets, irrespective of the bank with which the registered account is present,
- Unlike the existing process of sharing card details of customers with the vendors like MasterCard, PSD2 applies sophisticated authentication techniques without sharing card details.
Thus, online purchases will get more secure and comfortable.
Benefit #2: Safe a/c to a/c transactions
One of the major components of the latest PSD2 directive is the multi-factor verification of customers.
- It allows validation of the requests from a user in real-time.
- 2FA or 2 Factor Authentication develops a secure space for all the payment services under the European Union.
- The clients can promptly execute online payments between accounts.
The process has notably decreased the rate of fraud. However, banks sometimes have to request additional risk profile authentication when the case exceeds a particular currency rate. This authentication can include one-time password generation to verify or facial recognition.
The actual payment transfer is complete once the user qualifies for the additional verification.
The psd2 SCA requirementensures that the API framework will facilitate transactions between accounts seamlessly, but with complete verification and authentication processes.
Benefit #3: Lower card fees
Do you know that the implementation of the PSD2 will help customers to avoid third-party networks in the PCI environment? The present “pull” payment model aims to mediate direct interactions between API and the user’s bank or the intermediary as the vendors will request the payments through card schemes.
Benefit #4: Customized offers
PSD2 directive has forced the banks to allow Trusted Payment Providers (TPP) secure access to the accounts of customers. Of course, the customers have to provide acceptance.
TTP aid in the assembly and analysis of most critical data from the banks like debts, income records, purchase histories, and more.
The next step is to develop a complete scale view of a particular customer. The analysis of the data helps the TPPs to develop relevant financial offers like investment plans or loans for individual customers.
On proposing, these offers to the customers, the chances of success in gaining the business get higher.
Great opportunity for banks
You may say that PSD2 has opened up a plethora of opportunities to the banks. These include:
Monetization of additional data
The additional information about customers like the demographics, demit mandates, and more will give the banks the scope to decide whether to exceed the minimum requirements for PSD2 directives.
- Monetization of customer insights
The application of PISP and AISP services will aid in improving the potential to read the insights of existing customers.
- Expanding the ecosystem
Banks can now establish effective partnerships with external and internal third parties.
A final thought
The above discussion certainly shows that the new authentication process that abides by the PSD2 requirements will take banking to an all new height.
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