PSD2

Due to the growth of online shopping and online payments, the EU enacted legislation to protect consumers and merchants. This legislation was updated with the Revised Payment Services Directive (PSD2), which is intended to create a more integrated European payments market with a level playing field for payment service providers, and has a strong emphasis on secure payments and protecting consumers, e.g. with SCA (Strong Customer Authentication). Another key development was the introduction of open banking by requiring standardized access to payment accounts via an API.

The Revised Payment Services Directive (PSD2) gives consumers greater security when making online purchases. It has also led to the introduction of open banking, which allows for account to account payments and a range of financial services.

Strong Customer Authentication (SCA) is a requirement introduced in the EU’s Revised Payment Services Directive (PSD2) for authenticating online payments. It requires increased security for electronic payments with multi-factor authentication. Some transactions can be exempted from SCA. Online SCA exemptions include:

Low-value transactions: Exemptions are granted for transactions under EUR 30. However, issuers may demand SCA after five transactions or if the aggregated amount exceeds EUR 100.

Subscription and recurring transactions: Subscription or recurring transactions with a fixed amount are exempted from the second transaction onwards. SCA is required for the initial transaction or if the amount changes.

Mail Order and Telephone Orders (MOTO): MOTO transactions are not covered within the new standard.

SCA applies to online credit card transactions. The legislation was put in place to ensure payment providers improve customer authentication processes following the increased popularity of online shopping and online payments.