The Payment Services Directive 2 (PSD2) is an EU regulation designed to enhance online payment security and safeguard consumers against fraud. As more businesses offer online payment options, the need for stronger security measures is becoming increasingly critical.
Whether you are a payment service provider, a merchant, or an online retailer, PSD2 compliance is crucial for maintaining the security of your payment systems and protecting your customers’ personal data. Failure to comply with PSD2 regulations can result in significant financial penalties, reputational damage, and legal action.
In this blog, we will explore what PSD2 compliance entails and how it can impact your business. We will discuss the requirements of PSD2 and explain why it is essential for businesses operating in the European Economic Area (EEA) to comply with this regulation.
Additionally, we will introduce Klippa’s identity verification solution, which can help businesses become PSD2 compliant quickly and easily.
What is PSD2 compliance?
PSD2 compliance refers to the adherence to the Payment Services Directive 2, a regulation created by the European Union to enhance online payment security. Compliance with PSD2 is mandatory for all Payment Services Providers (PSPs) operating within the EEA, including banks, payment institutions, e-wallet providers, and other payment service providers.
Merchants and online retailers outside of the EU who accept online payments from customers in the EEA are also required to comply with PSD2 regulations.
One of the primary objectives of PSD2 compliance is to reduce fraud and increase the security of online payments. To achieve this, the regulation requires PSPs to implement additional security measures, such as Strong Customer Authentication (SCA).
SCA requires two (or more) factor authentication, such as a password and a biometric factor (e.g., fingerprint or facial recognition), to verify the identity of the person making the payment. By implementing SCA, businesses can demonstrate to their customers that their payment systems are secure and that their personal data is protected.
PSD2 compliance also promotes innovation and competition in the payment industry by requiring PSPs to open up their payment infrastructure to third-party payment service providers (TPPs). TPPs can access customers’ bank account data with their consent and provide new payment services, such as account aggregation and payment initiation.
This allows customers to manage their finances more efficiently and gives them more control over their data.
Now that we know what PSD2 compliance is, let’s have a look at the reasons why you as a business need to be compliant.
Why does a business need to be PSD2 compliant?
By complying with the PSD2 regulation, businesses can demonstrate to their customers that their payment systems are secure and that their personal data is protected. This can help build trust and confidence in the brand, which can lead to increased customer loyalty and repeat business.
Additionally, PSD2 compliance can help businesses avoid financial fines and penalties. The amount of the fine may depend on the severity of the violation, the size of the company, and the number of affected consumers. Regulatory authorities have the power to enforce penalties and fines, which can be significant, ranging from thousands to millions of euros.
Curious if your organization needs to be compliant with PSD2? Let’s answer that question below.
Who is impacted by the regulation?
The PSD2 regulation affects businesses, regardless of their industry, that sell products or services online and accept electronic payments from customers located in the EEA. This includes, but is not limited to, retailers, service providers, e-commerce businesses, and other organizations that sell products or services online.
These organizations are required to ensure that their payment systems or PSPs are PSD2 compliant. PSPs that are required to comply with PSD2 regulations include banks, payment institutions, e-wallet providers, and other payment service providers.
If your organization is impacted by the regulation, you should be well aware of the requirements to be compliant. But don’t worry. We will cover those next.
What is required to be PSD2 compliant?
One of the main requirements of PSD2 compliance is the implementation of Strong Customer Authentication for all online payments. SCA requires the customer to provide at least two forms of identification before a payment can be processed.
This could include something the customer knows (e.g. a password or PIN), something they have (e.g. a mobile phone or token), or something they are (e.g. biometric data).
Another requirement of PSD2 compliance is the use of Dynamic Linking. Dynamic Linking is a process that ensures the authenticity of the transaction and the parties involved. This means that each transaction must be unique and that the transaction details must be linked to the specific payment amount.
Are you now wondering where to start? Well, in any case, you would need a solution that can verify a customer’s identity. In the following section, we will introduce Klippa’s identity verification solution, which has a few unique features, such as liveness detection or identity card verification.
Become PSD2 compliant with Klippa
Klippa provides a comprehensive Identity verification solution that helps businesses to comply with PSD2. With our advanced technology, we can easily authenticate the identity of customers enabling businesses to meet PSD2 requirements.
Our solution offers the option to incorporate numerous additional security layers as desired. Here are some examples:
- Verification of ID documents: WIth fraudsters going around trying to make transactions with fake ID cards, Klippa protects businesses by making sure that the identity document is verified properly.
- Verification of identity through a selfie: Users are asked to provide a quick selfie, which replaces one-time passwords or email authentication. Selfies are crucial as they provide facial biometric data, which are extremely difficult to fake.
- Liveness detection: Verifies that a person is physically present during an identity verification process and not using a fake photo or video. Liveness detection prevents identity spoofing, which is an attempt by a fraudster to gain unauthorized access to services or systems, for example, by using synthetic identities.
- NFC ID verification: The NFC ID verification technology is used to read encrypted data in the chip of identity documents for user verification. With the help of a smartphone, NFC technology can be used to access users’ data from identity documents and validate document authenticity.
Our solution is available via API and SDK and can be integrated with your web and mobile applications, providing you and your customers with fast and secure identity verification.
And on top of that, we do not store your and your client’s data on our servers to comply with GDPR.
Our experts are available to help you find the best solution for your needs. Simply book a free demo below or contact us to learn more about our ID verification solution.