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Payment Initiation : The Perfect Alternative to Card Payments ?

As of January 1st, 2021, new rules are required to increase the security of online payments. PSD2, the Payment Services Directive, requires strong authentication for online payments over €30. This new rule is likely to impact customer habits and, by extension, the revenues of online merchants.

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PSD2 and new regulations

What is PSD2 ? For a quick reminder, the Payment Services Directive provides fair access to the payments market and increases consumer protection. Adopted in 2007, it was repealed and replaced by PSD2 in 2015. This new version aims to fill the gaps of its big sister and introduce new rules.

Among these new rules is a reinforcement of the security of online payments. From now on, a strong authentication is mandatory for online payments exceeding €30. This authentication requires to verify the identity of the customer to reduce fraud. It is based on two of the following 3 elements:

  • The Inherence, which is specific to the customer (fingerprint, voice recognition, etc).
  • The Knowledge, which only the customer knows (PIN code, password, etc).
  • The Ownership, which only the customer possesses (a smartphone, a USB key, etc).
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Thus, during an online purchase, if the customers choose to use their credit card at the time of the payment step, they will be subject to this additional step. This increase in security worries merchants because it lengthens the purchase process. Indeed, a longer journey may deter the customers and lead them to abandon the transaction. In the end, the merchants risk seeing purchases cancelled and a drop in revenues.

When the 3D Secure procedure was introduced in online payment methods, customers were not used to receiving a text message to validate their purchase. Many feared a phishing attempt and this was felt with a drop in revenues of almost 20%. This was the result of poor communication about this new feature.

There is now a challenge for payment experts to support merchants in order to secure revenues. We will have the opportunity to talk about this in a future article.

To avoid losing customers at the time of payment, other solutions and opportunities are available. One of them is payment by bank account, or payment initiation.

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Payment by Bank Account

Payment by Bank Account, or Payment Initiation, is a new payment method that allows the merchants to trigger a payment from their customer’s account to their own through a PISP, Payment Initiation Service Provider.

Safer, less expensive than credit card or check payment, especially for large baskets, and more fluid, this payment method improves the customer’s user experience while increasing merchants’ conversion.

The benefits are numerous. On the customer side, the maximum amount per transaction is high, €100.000, reducing the risk of the transaction being rejected. The customers can consider purchases that they might not have been able to make, or might have been reluctant to make via another longer or more expensive payment method such as a payment by check.

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This payment method is also more secure because it relies on SCT, SEPA Credit Transfer, a.k.a bank transfer, that are already 100 times less subject to fraud than card payments. Also, users do not have to seize any IBAN or card number to proceed with the payment because the journey is also protected by a SCA, Strong Customer Authentication.

Finally, this is simple and fluid. For example, if the customers make an online purchase, they choose the payment initiation mode : all they have to do is to choose their bank. They are redirected to their bank page and they identify themselves, select the account to which they want to be debited and approve the transaction. Their payment is validated and the customers are redirected to a page confirming their order. Simple and efficient. In the case of an in-store purchase, the staff share a link, either by e-mail/text message or via QR Code, which the users can use to enter the above customer journey.

On the merchant side, they see the increase of their conversion rate. The journey is fluid and the maximum amount per transaction is high, allowing the customers to be more inclined to select this payment method.

The merchants are also guaranteed to receive payment thanks to this method. Combined with SCT Inst (Instant Bank Transfer), the payment is executed in a few seconds and the merchants receive the funds just as quickly. Once executed, the payment cannot be revoked by the customer.

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The merchants also see their costs decrease because with payment by bank account, there are no interchange and no network fees.

Finally, as said before, the fraud rate is 100 times lower than payments by card or check, an important indicator to take into account.

Today, beyond the fact that people in the world have gone through difficult times and that the upcoming months risk to alternate between curfews and confinements, there is a real challenge to support merchants and end customers in the use of this solution which is new and interesting for them.

Since late 2019, Market Pay has the PISP accreditation to provide this solution. Thanks to this accreditation, we are supporting merchants on this innovative and secure payment method, and on many other solutions.

At Market Pay, our teams constantly work to offer new solutions, and as payments experts, we are convinced that payment by bank account will become more and more popular in the near future.

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