On January 13, 2018, the Revised Payment Services Directive (PSD2) became law in the UK. PSD2 is a directive from the European Union (EU) that will dramatically change the landscape of banking and payment processing, and all retail businesses need to be aware of the practical implications of the new rules.
The original Payment Services Directive (PSD) was first put forward in 2007, with the aim of setting up a single payments market in the EU and opening the market in payment services up to new providers. PSD2 is a revised version of the original directive and has been brought in to provide better consumer protection and more competition.
Perhaps the most significant impact of PSD2 on retailers will be associated with surcharging, which is now banned. That means merchants who take online payments are no longer able to charge a customer an extra fee when they make payments using their card. Formerly, it was common practice for merchants such as ticket sellers, travel agents or food delivery companies to charge an additional fee with card payments, but this practice is now outlawed by PSD2.
PSD2 – What you need to know
To help your business transition through these surcharging changes, there are some key aspects that you need to be aware of.
The surcharging ban only applies to business-to-customer (B2C) transactions, and not to business-to-business (B2B) transactions. It affects all customer payments made with debit and credit cards, direct debit payments and credit transfers.
The surcharge ban only applies when both the customer and merchant’s bank are based in the European Economic Area (EEA). There is also some local variation in the extent of the surcharge ban. In the UK, for example, the government has included payments that are made through PayPal, Amex and ApplePay in the ban.
There are also implications for methods of payment that are not directly covered by the ban, including Diners Club, or other non-card payments. In these cases, charges applied by the retailer must not be higher than the costs of taking that payment method.
Online platforms or marketplaces can still apply application fees, as long as these fees are applied on an equal basis and not varied according to the method of payment.
PSD2 also allows new payment processing operators to enter the market, including Account Information Service Providers (AISPs), who will be able to offer a range of services to retailers.
Retailers are required to operate at a higher level of security, most notably by providing Strong Customer Authentication (SCA), often known as two-factor authentication. Two-factor authentication not only requires a username and password, but also a device, e.g. mobile, smart watch, that the user currently has on them.
SCA provides an additional layer of protection that secures the site, the customer and the transaction. This ultimately creates a secure brand experience, encouraging ongoing interactions between businesses and customers.