TheRetailer_Autumn_2019

PSD2 Doesn’t Have to Mean More Lost Revenue for Retailers

ED WHITEHEAD EMEA MANAGING DIRECTOR Signifyd

MERCHANTS CAN MEET THE NEW REGULATION’S STRONG CUSTOMER AUTHENTICATION REQUIREMENTS WITHOUT KILLING SALES Online retailers face a revenue leakage problem: At every stage of the buying journey, friction in the process means that sales are slipping away from retailers who spend significant time and money acquiring the very customers who get turned away for fear of fraud. Sales are blocked by imprecise filters and rules at the authorisation stage. Inadequate fraud management can shed another 5% or so in fraudulent orders and false declines. And it’s not all about fraud. Sales are lost at the shipping stage because of poor inventory visibility and other complications. Then come returned orders and chargebacks, both for fraud and for issues around missed deliveries and products that didn’t live up to their billing in the eyes of the consumer. Now comes the challenge of PSD2’s SCA and concern among industry players, including Stripe, Worldpay and Amazon, that the regulation’s SCA requirements will cause further revenue leakage due to lost conversions resulting from consumer-unfriendly requirements during online checkout. We all hope the new regulation’s impact won’t live up to the most dire predictions, but the impact will be significant. The three payment and ecommerce giants were not the only organisations issuing warnings in the run-up to September’s effective date of PSD2 and the SCA requirements that come with it. Retailers argued they simply weren’t ready. And more importantly, they argued, consumers were not ready either. Fortunately based on these concerns and clear evidence that consumers and retailers were not ready to live in a world of SCA, the European Banking Authority (EBA) extended enforcement of the more rigorous authentication requirements. And while there is still some confusion over how much time the delay buys merchants and whether the amount of time is the same in every country, the pause in enforcement does give retailers an opportunity to approach upgrading their SCA in the larger context of revenue leakage.

A significant portion of retailers’ worry about losing sales to SCA’ was based on the misperception that the 3D Secure payment protocol would be the only way to meet the new regulation. Historically, 3D Secure has meant lost sales for retailers, including abandonment rates reported as high as 55 percent in some countries. But it turns out that 3D Secure on its own is not an SCA silver bullet, though it can be an important part of the answer. And the protocol has been upgraded and rechristened 3D Secure v2.2 with the promise of less friction and more conversions. Given all that, more robust SCA requires a more elegant solution. We expect that the best customer experience under PSD2 will involve an SCA provider that uses machine learning to conduct dynamic fraud analysis alongside 3-D Secure to minimise approval times, thereby minimising friction and minimising authorisation rates. A system designed that way and relying on a vast amount of available transaction data provides just the right scrutiny for each order to protect consumers and retailers from fraudulent credit card transactions while avoiding the added friction brought on by one-size-fits-all, legacy 3D-Secure-powered system. And let’s remember, that is the original intention of the legislation, to protect consumers from fraud, not make them jump through SCA hoops! Such a system can also shift the liability for fraud away from merchants and onto issuing banks in the case of a 3D-Secure- powered system and onto the SCA provider for any transaction that would require a step-up or be declined under the new rules. While the PSD2 era’s SCA challenge is relatively new, the broader challenge is the same one that has faced online retailers forever: How to adequately protect the business without creating friction for buyers that kills sales and customer lifetime value? In that sense, the current SCA challenge provides retailers a chance to examine the entire buying journey and identify the points along that journey where revenue is leaking.

32 | autumn 2019 | the retailer