PSD2 in the UK

For an efficient, competitive, and secure digital payment market

The strong customer authentication (SCA) requirement of the directive on payment services (PSD2) besides the EU countries is now being enforced in the UK as well. All transactions independent of the amount should be processed by the PSD2 rules starting from 14 March 2022.

The UK is a powerful player in the fintech and payments market, especially since the government recently announced more focus on stimulating this sector. In addition, the UK market has the advantage that it can make use of the EU know-how.

  • PSD2 has already been in action in the EEA since 31 December 2020
  • PSD2’s official start in the UK is 14 March 2022
  • E-commerce sales are projected to grow to $5.4 trillion in 2022
  • 3-D Secure is a standard SCA method to support the PSD2 regulation implementation

The PSD2 framework means security, but the risk of increased friction or even a decline of the authentication success rate could rise if not implemented correctly. The data based on Netcetera internal research from its EU experience shows that there is a decrease to less than 80% of authentication success.

However, there are multiple ways how to comply with the regulation and keep the sustainability of the conversion or even improve it. For a transaction to be compliant and successful, the issuer and acquirer domain both need:

  • to enable SCA and
  • apply the EMV® 3DS2 protocol

Due to the mandated adoption of 3DS2, UK issuers have seen an increase in 3DS2 transactions on their platform. This is adding challenges when it comes to response times, scalability and stability.

The data up until November 2021 shows that UK challenge success rates are not much better than the EU average. The difference is that UK issuers have a much lower challenge rate of 5-15%. And a lower challenge rate translates into a higher overall authentication success rate.

The data on Netcetera’s platform is in line with the schemes reporting an increasing number of 3DS2 transactions, which will only increase more with the UK going live. On average, around 82% of all transactions are approved within the 3DS process.

Challenges and solutions to improve conversion

The biggest challenge for issuers and merchants related to PSD2 SCA in the checkout process is the issues with the challenge flow, e.g. abandonments, as well as an understanding of the new regulations and processes. Card/customer enrollment problems, issues with proper exemptions handling and compatibility, and technical issues come right after this. The acceptance rate in the authorization approval rate in the EEA (European Economic Area) – where PSD2 is mandated – is 85,5%. Outside this area, it is slightly higher with 89%.

The majority of large UK issuers are ready to accept the new challenge, which makes it clear how critical proper authentication is for the successful checkout process. Card issuers can take action in several places to improve conversion.

  1. In particular, by making the onboarding process for strong customer authentication as user-friendly as possible. It is also helpful to consistently take advantage of exemptions to minimize the need for cardholders to confront strong customer authentication. In addition, offering whitelisting can be a relatively simple way to significantly increase conversion.
  2. Decreasing the false declines with the implementation of a risk-based assessment tool is one more way to go. 3DS2 helps in that matter with the increased number of data points shared between merchant and issuer (10-times more). The implementation of 3DS2 requires merchants and card issuers to exchange more data, which will result in better fraud assessments and a reduction in the rate of false declines.
  3. Incorporating the right monitoring and reporting to identify any areas of improvement and track overall performance will be a must, too. Providers, such as Netcetera, experienced in the 3DS ACS domain, can help with specializations in new areas and easier adaption to changing regulations.

Nearly three-quarters of digital account users say the ability to use their preferred authentication method online and enjoy a seamless login experience boosts their trust in a service provider.

Smart exemptions for seamless transactions are now needed more than ever before

Merchants and acquirers will benefit to look at SCA exemptions based on their portfolio of cardholders and customers to eliminate friction to the cardholder. Data from Netcetera on SCA exemptions so far show that Transaction Risk Analysis (TRA) and Low-Value Payments are the most adopted (87% for TRA and 11% on Low-Value according to Netcetera figures).

Now more than ever, the results in testing have exposed a need for 3DS solutions to be flexible and modular to fit into a hierarchy of existing fraud strategies and authentication providers. Initially, this will be an investment. In the long run, it is more sustainable than dealing with fraud, scheme fines, or an abnormal rate of declines which could lead to losing millions.

Netcetera has developed a modular model, flexible enough to meet the requirements of multiple sets of regulations.

An experienced partner for secure online commerce

We are ready to help the UK market upgrade their PSD2 strategy with forward-thinking game-changers like SCA, 3DS2, exemptions, Delegated Authentication, Secure Remote Commerce, and beyond. 

The easy processing of future transactions is an essential way to benefit from this rapid growth and success in a digital-first world


Watch the Netcetera webinar on PSD2 or please feel free to contact us for any consultation on how to improve your conversion in times when compliance with the PSD2 regulation is a must.

For more webinars please check out this page.

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