Guiding you through PSD2

In light of the impact of Covid-19, and to minimise the impact on both consumers and e-merchants, the Financial Conduct Authority (FCA) has updated their Strong Customer Authentication (SCA) page to give an additional six months to implement strong customer authentication for e-commerce, to a revised date of 14 September 2021. View statement here.

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The Expected Deadline

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Are you ready for PSD2

PSD2 is a game changer

The second Payment Services Directive also known as PSD2 is a game-changer. It introduces new security measures – to make it safer to shop and bank online.

Listen to our expert on SCA

Federico Gaffney, Senior Manager Payment Strategy Risk for Elavon Europe, talks us through the implementation of Strong Customer Authentication for eCommerce merchants

Elavon PSD2 Updates

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Card Brand Compliance associated with Strong Customer Authentication

To support the roll-out of EMV 3D Secure technology, there will be programmes throughout 2020 to help with the compliance of card brands - such as Visa and Mastercard. These are to make sure that all eCommerce payments processed in the European Economic Area meet the required Strong Customer Authentication (SCA) by 31 December 2020, as part of the Payment Services Directive 2 (PSD2). SCA aims to drive down fraud and improve confidence in card payments, allowing that growing sector to continue to flourish.

It is vital you actively manage your PSD2 compliance and monitor timelines for implementation. You must have plans in place to operate to the highest version available of EMV 3D Secure. Card brand schemes, acquirers and gateways may well impose earlier deadlines to progress changes in good time to meet the official deadline.

Act now to gain certification and avoid penalties. For example transactions at devices with no Chip and PIN capability [Magnetic swipe] and those that are completed by manually entering the card details when the cardholder is present [Pan Key Entry] will incur fees for the use of these less secure payment methods in card present environments - whether excluded from the scope of PSD2 or not, i.e. Transit. There is cost associated with the introduction of PSD2, but the greatest cost will be loss of sales, as failure to comply will result in declined transactions.

Don’t forget the additional benefits to EMV 3D Secure: such as improved security, wider interoperability and flexibility to enable innovation, fewer barriers to market and greater choice to the consumer.

We will provide further updates on the impact to your business in our monthly Card Scheme Changes bulletin, and within our series of PSD2 updates. To discuss how you can mitigate those fees and amend your strategy to take best advantage of the changes, talk to us today.

The European Banking Authority (EBA) has announced today that the period for the implementation of Strong Customer Authentication (SCA) under Payment Services Directive (PSD2) will be 15 months, from the 14 September 2019. Strong Customer Authentication (SCA) must be applied to all electronic payments within the European Economic Area (EEA) by 31 December 2020.

The EBA have acknowledged the complexity and challenges in the payments environment in Europe. To help manage the difficulties the EBA have granted flexibility to the National Competent Authorities (NCAs). The additional time is needed to ensure that all the stakeholders in the ecosystem; banks, acquirers, gateway providers and merchants equip themselves with the relevant tools to fully implement PSD2. They must deliver on time and minimise impact to consumers.

During the extension period, the EBA and the European Commission (EC) will be particularly vigilant in monitoring the implementation of the directive. All players including NCAs must participate fully and assume all their supervisory responsibilities. Each player must produce and execute their migration plans in an expedited manner.

Elavon has advocated for a pan-European migration plan that is consistent, harmonised and effective across all member states. However, several NCAs have taken different approaches to date, so there is a risk of differences in implementation. If that happens, it could be difficult, expensive and time-consuming for merchants and payment providers to customise their solutions

At Elavon we will be working with the relevant NCAs to complete our migration plan. We are intensifying our communications and knowledge sharing with customers and partners.

We are pleased to report very little disruption with the introduction of PSD2 SCA. This announcement by the EBA means that NCAs will not take any enforcement actions against any impacted entities, provided the entities are executing on their migration plan and meeting each of their individual milestones.

Our aim is to enable you to carry out SCA to meet the regulations with the acceptance of 3D Secure V2 via our upgraded platforms. To deliver a smooth transition, we actively engage with all our partners and gateway providers that connect to our acquiring platform.

Meeting PSD2 SCA obligations is our top priority. Our team of experts are ready to help you optimise your customers’ experience while avoiding payment declines and lost sales.

This is a one-time implementation window and will not be extended beyond 31 December 2020.

Avail of this limited time to ensure that your eCommerce payments are ready to be authenticated using 3D Secure V2. If you have 3D Secure V1 in place, upgrade to 3D Secure V2. This is a simple upgrade and your payment gateway provider will assist you with the details.

If you have not used 3D Secure before, it might involve more work for you or your developer. Do not delay, it is important that you speak with your gateway provider or web developer to understand what is involved.

We will continue to share further details with you as we receive and digest them. In the meantime, if you have any questions relating to the above, please speak with your Relationship Manager or our customer services team.

PSD2 explained

The 3-D Secure 2 (3DS 2) standard is the global benchmark of card-not-present data authentication. Our upgraded payment solutions use 3DS V2 to protect your eCommerce transactions: verify identities and payment information in a seamless security process that reduces friction and liability, without compromising the customer experience.

Stay ahead of compliance

Implement 3DS V2 to keep your eCommerce solution at the cutting edge of payment security, reducing fraud and enhancing legislative compliance.

Prepare your business for incoming regulations: 3DS V2 delivers compliance with the Strong Customer Authentication (SCA) requirement, representing the gold standard of card authentication across Europe.

Customer confidence

3DS V2 promises online customers confidence and peace of mind when they shop with you, without intrusive security precautions.

Building on password and text message security measures, 3DS V2 enables customers to authenticate their online payments via mobile shopping apps, using fingerprint or even facial recognition.

Seamless security

Streamline the online card authentication process for businesses and customers. 3DS V2 transfers more payment data elements to banks more quickly and securely, and incorporates specific contextual information, including device ID and transaction history.

No need for website redirects or excessive customer input: cardholder banks take on compliance responsibility, assessing risk levels and either greenlighting payments or challenging customers for further information.

Benefit from of upgrading to the latest version of EMV 3D Secure

· Increased cardholder confidence when transacting with your business

· Reduced fraud and chargebacks, liability protection

· Prevention of unauthenticated transaction declines

· Improved risk based decisions leading to higher approval rates

· Full support for all available exemption types and payment device types

3DS	2.1	2.1+¹	2.2
SCA for connected devices and web purchase
Non-payment authentication scenarios, such as payment card on-boarding to merchant apps
Provides for all available SCA exemption types
Europe specific scenarios in support of PSD2, such as trusted beneficiary and delegated authentication
Biometric consumer user experience

¹ 2.1+ relates to Mastercard only

How EMV 3D Secure, SCA and PSD2 have changed the liability for fraudulent chargebacks… in most cases.

It used to be the case that merchants were liable for any eCommerce chargeback deemed to be fraudulent. Such as transactions from cards that were stolen, cloned or counterfeit.

However, the widespread adoption of Strong Customer Authentication (SCA), part of the Payment Services Directive 2 (PSD2) changes that you’ve heard so much about means liability for fraudulent chargebacks now shifts to the card issuer – in most cases. There are exceptions!

In the majority of cases, liability shifts to the issuer when:

- The payment is successfully authenticated using 3D Secure protocols and

- The card involved is one of the following: Mastercard, Maestro, Visa, American Express, JCB, Diners Club International and UnionPay.

3D Secure, sometimes referred to as 3DS, provides an additional layer of security for eCommerce transactions prior to authorisation. 3D Secure 2.0 is the new generation of the protocol and is compliant with EU mandates on strong customer authentication.

3D Secure allows more contextual data to be sent to the customer's bank (including mailing addresses and transaction history) to verify and assess the transaction risk.

The cardholder would only be required to complete additional steps to prove their identity if the transaction is determined to be high risk.

In summary, in the majority of circumstances, where your business initiates 3D Secure you will be protected from fraud liability in Europe so long as the issuer authorises the transaction - even if the issuer is unable to support SCA.

As a merchant you will still remain liable for fraud if:

      - You do not support 3D Secure

      - You use data only - this is where you send the same 3D Secure 2 data to Mastercard, the data is used by Mastercard for risk scoring which they will then send to the issuer as part of the authorisation request. Customers will not be presented with a 3D Secure 2 challenge as no authentication was requested or took place

      - PSD2 SCA exemptions are applied (see table below)

      - The merchant applies an acquirer exemption through 3D Secure 2 (see table below) where one of the four exemptions are used but no challenge is applied

The table below summarises the liabilities for fraud-related chargebacks and how they apply between the issuer, merchant and the acquirer. These rules are dependent on which payment service provider (PSP) applies an exemption, and whether the transaction is submitted via 3D Secure 2.0.

PSD2 sets out its own principles of liability as a matter of regulation, but does not preclude PSPs from making additional arrangements.

If there are terms in the table you’re unfamiliar with, they’re explained below.

Terminology	Explanation
Exemption	Customers who do not need to use two factor authentication to complete the purchase.
Transaction risk analysis (TRA)	Is a method that observes all parties to the transaction and their attributes to prevent, detect and block fraudulent behaviour.
Corporate processes and protocols	These are payments made through dedicated channels within a company structure, such as lodge cards, central travel accounts and virtual cards). Some authorities may need to confirm payments made using, for instance, central travel accounts, lodge cards and virtual cards – payment processes that are centralised within a given business or corporation – to guarantee levels of security in line with the PSD2 requirements.
Trusted beneficiaries (whitelisting)	The payer may add a trusted merchant to a list of trusted beneficiaries held by their issuer after the first authentication is completed. Subsequent transactions with the whitelisted merchants are likely to be exempt from future authentication. It should be noted that in order to be compliant with SCA provisions: - Only issuers can create/maintain lists of trusted beneficiaries on behalf of cardholders and use the trusted beneficiaries exemption, although issuers are allowed to outsource or delegate this solution (such as through Visa Trusted Listing). - Only cardholders can add/remove a merchant to/from a list of trusted beneficiaries, or consent to a suggested addition/removal provided by the Issuer. Acquirers cannot apply this exemption and a merchant cannot set up the list for the purpose of the SCA exemption.
Low value	Payments below €30* are exempt from SCA. (However, if the exemption has been used five times since the customer’s last successful authentication, or if payments exceed €100, their bank may request authentication). or equivalent currency
Out of scope	These are transactions not covered by the PSD2 mandate. The issuing bank will not apply any strong authentication and guarantees that shoppers will not be presented with an authentication challenge, unless you specifically ask for 3D Secure in your payment request.
Merchant initiated transaction (MIT)	Merchant initiated transactions are payments that are initiated by you, the merchant (not your customer), pursuant to an agreement that you have in place with your customers allowing you to initiate payments on their behalf.
MOTO	A 'Mail Order/Telephone Order' transaction.
One leg out	A transaction where either the bank or PSP (issuers or acquirers) is located outside the EEA.
SCA	Strong Customer Authentication is a requirement that a payer is authenticated by a PSP (payment service provider), through at least two of the following factors: - Knowledge: Something only the payer knows – such as a password. - Possession: Something only the payer has – such as a preregistered mobile phone. - Inherence: Something the payer is – such as a biometric fingerprint or facial recognition.
SCA required	Strong customer authentication process is required to complete the transaction.
PSD2	Payment services directive 2, is a European regulation for electronic payment services. It seeks to make payments more secure in Europe.
CIT	A customer-initiated transaction.
CAVV	Cardholder authentication verification value. This is a unique value generated by the issuer (or by the card scheme on the issuer’s behalf) and is passed on to the acquirer to prove that the transaction has been authenticated. The use of CAVV helps secure the integrity of the 3D Secure transactions by enabling end-to-end traceability.
TAVV	Visa’s name for the secure cryptogram generated by the 3D Secure process done with a stored payment token rather than a card number.
ECI	The electronic commerce indicator indicates the level of security used when the cardholder provided payment information to the merchant. It must be set to a value corresponding to the authentication results and the characteristics of the merchant checkout process. The merchant commerce server transmits the authorisation request message, including the ECI, to the acquirer or its processor.

The following are the main exemption categories which can be applied by Elavon and/or the issuer:

1. Low Value Exemption

Remote transactions up to €30 (or equivalent in other currencies) and contactless transactions up to €50 (or equivalent in other currencies) do not require SCA up to a maximum of five consecutive transactions or a cumulative limit of €100 (€150 for contactless). If the cardholder initiates more than five consecutive low value payments, or if the total payments value exceed €100 (€150 for contactless), SCA will be required. Please note that currently, only Visa and Mastercard have released their requirements to support exemptions. The monitoring of the consecutive transactions and cumulative limits will be the responsibility of the issuer.

2. Recurring Payment Exemption

Some transaction types are initiated without the cardholder being present or in-session. In these cases, SCA cannot be performed and there are exemptions designed to accommodate these flows. In the case of recurring transactions (same amount) or other customer initiated transactions (variable amount), the initial capture of card details for storing on file must be authenticated using SCA – this results in a unique identifier that is used in subsequent transactions within a series to indicate to issuers that SCA has already been performed. To ensure that these transactions are exempted from

SCA step-up requests, customers and their service providers must ensure that the card scheme MIT

frameworks are followed and that all transactions are appropriately flagged as recurring with reference to the original transaction via the trace/transaction ID value.

3. Transaction Risk Analysis (TRA) Exemption

Issuers and acquirers’ may use TRA on customer’s partners’ behalf to exempt transactions from the need to have SCA performed. This effectively means that Elavon would analyse the transaction to determine the likelihood of it being genuinely performed by the cardholder and exempt it from 3DS. TRA will be available via two channels. Elavon will offer its own TRA service where Elavon will analyse transactions to determine if the transaction can be exempted from cardholder authentication. In addition Elavon will support TRA conducted by approved third parties. Further details on both services will be made available in due course. The issuer however will always have the final say, so for example, where Elavon were to apply the TRA exemption on our customers/partners’ behalf, the issuer retains the right to require SCA (known as step-up). The rules around TRA exemptions are complex and Elavon can only control how the transaction is handled up until the point that it is sent to the issuer. There are three threshold levels of exceptions – €100, €250 and €500. Elavon will be providing more guidance on TRA in the coming months.

4. Trusted Payee Exemption (or whitelisting)

With later levels of 3DS, cardholders will have the option to whitelist’ a business they trust with their card issuer. This means that the cardholder can elect to make a business a‘trusted payee’ and therefore transactions at a ‘whitelisted’ business are to be exempt from future SCA. Whether a cardholder’s elected wishes are upheld is totally the decision of their issuer, as the card issuer may reject the initial request or subsequent exemption requests if it has cause to do so. Furthermore, it is not known at this stage whether issuers will be ready to support whitelisting by 14 September 2019. Elavon are staying very close to developments regarding the Trusted Payee Exemption and will keep our customers/partners’ informed of the latest situation regarding this exemption category as they develop. It should be noted that a business (or their acquirer) cannot elect to be whitelisted themselves, this can only be done between the cardholder and their issuer.

5. Secure Corporate Payments

Payments made through dedicated corporate processes and protocols (e.g. lodge cards, central travel accounts and virtual cards) which are initiated by business entities, not available to cardholders and which already offer high levels of protection from fraud may be exempted from SCA. Elavon is working closely with the card schemes to understand the determination of these transactions and will inform customers/partners once it becomes available.

We expect that card issuers may decide to ask for extra confirmation through the use of voice referrals or an immediate refusal of the transaction. The transaction types currently not supporting the SCA functionality that are most at risk are:

3DS1 transactions (where the issuer is only supporting 3DS2)

Magstripe transactions

Keyed customer present transactions

Non-authorised transactions

Chip fall back

Deferred authorisations (non-Chip and PIN transactions)

Unauthenticated eCommerce transactions

References the articles of the Regulatory Technical Standards (RTS) published by the European Bank Authority.

Merchant Initiated Transactions (MIT)

Merchant Initiated Transactions are payments initiated by the customer without the interaction of

the cardholder, for example:

A single transaction, such as a cancellation fee

Recurring payments for fixed or variable amounts such as a monthly membership subscription

A series of transactions for a variable amount or at variable intervals – such as irregular payment instalments for a holiday, or a regular but variable amount such as a utility bill

These transactions must be governed by an agreement between the cardholder and customer that, once agreed, allows the customer to initiate subsequent payments without any direct involvement of the cardholder However, SCA should be applied to the first transaction/action mandating the customer to initiate payment.

Mail Order/Telephone Order (MOTO)

MOTO transactions are not in scope for SCA, as the customer is not in the flow. However, there is a growing trend of fraud and chargebacks on MOTO transactions, and Elavon strongly recommend trying to find ways of taking transactions via eCommerce – perhaps using a Pay by Link type functionality.

MOTO should only be used where the cardholder details have been provided via mail or phone and is not intended to cover customer present interactions via eCommerce or keyed transactions.

Anonymous Transactions

Due to their very nature, payments made through the use of an anonymous payment instrument, such as anonymous prepaid, for example, gift cards, are not subject to the obligation of SCA.

Unattended Transport and Parking Terminals

Any payment for transport fares or parking at unattended terminals (e.g. at an airport or train station) will not require SCA.

One Leg Out Transactions

It may not be possible to apply SCA to a transaction where the Issuer is located outside the EEA1 and is therefore considered out of scope of SCA. SCA should be applied to these transactions on a ‘best effort’ basis.

Since the introduction of PSD2 we have been actively monitoring approval rates to identify any impacts to your business.

We notice that some banks have started to decline or ‘step-up’ contactless payments that require strong customer authentication (SCA). This happens after a customer has made five contactless payments in a row (or once the payments have totaled €150). The card will decline and the customer will be asked to insert their card in the machine and enter their PIN. If the transaction is still declined, advise the cardholder to contact their bank and request another payment method in that instance.

Checkout our ‘Practical Impact Guide for Face to Face’ to assist you through this transition period.

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Guiding you through PSD2

Get your business ready for PSD2 Request a call back

The Expected Deadline

Days

Hours

Minutes

Seconds

Latest thought leadership

PSD2 Practical Impact Guide For eCommerce

PSD2 Practical Impact Guide for Face to Face

PSD2 Guide - Important Updates

Are you ready for PSD2

PSD2 is a game changer

Listen to our expert on SCA

Elavon PSD2 Updates

Merchant Bulletin

Fees and Fines

PSD2 SCA – Update 16 October 2019

What does this mean for your business?

Actions you must take?

What does this mean for your business?

Actions you must take?

PSD2 explained

3DS the strongest data security protection

3DS

2.1

2.1+1

2.2

Liability shift

What is liability shift?

When does liability shift to the issuer?

What are the minority of circumstances?

Liability shift guide

Appendix

What are the exemptions to SCA

1. Low Value Exemption

2. Recurring Payment Exemption

3. Transaction Risk Analysis (TRA) Exemption

4. Trusted Payee Exemption (or whitelisting)

5. Secure Corporate Payments

What is not supported

What is out of scope

Merchant Initiated Transactions (MIT)

Mail Order/Telephone Order (MOTO)

Anonymous Transactions

Unattended Transport and Parking Terminals

One Leg Out Transactions

Soft declines

Get your business ready for PSD2

Customer Service

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2.1+¹