Payments Experience

Balancing Transaction Security and Customer Experience Amidst PSD3

The exponential growth of account-to-account and instant payments has dramatically altered the payments landscape. Amid this seismic shift and PSD3, how do companies balance transaction security and customer experience?

Balancing Transaction Security and Customer Experience


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Balancing Transaction Security Whilst Delivering a Satisfying Customer Experience

Payments Experience
As consumer transaction behavior continues to evolve, it is incumbent upon the industry to keep pace. In fact, global cashless payment volumes are set to increase by more than 80% from 2020 to 2025, from about one trillion transactions to almost 1.9 trillion, and to almost triple by 2030.i The exponential growth of account-to-account and instant payments has dramatically altered the payments landscape. Amid this seismic shift, how do companies balance transaction security yet deliver a satisfying customer experience?

The European Commission drafted the third Payment Services Directive (PSD3) and Payment Services Regulation (PSR) to respond to this dual challenge. The new rules will broaden access and address the evolving risks and opportunities presented by these newer, faster payment types.
This article is intended to help us better understand these new regulations and directives, the industry’s response and how related challenges and opportunities may shape the future.

PSD3 and PSR offer a fraud protection framework

Unsurprisingly, generative AI fraud has increased in tandem with the rise of alternative payment methods. Fraud attacks on individuals using instant payments and authorized push payment (APP) fraud are growing. Companies, too, are victimized by scammers using fake invoices hoping to breach corporate accounts payable systems. PSD3 and PSR aim to bring enhanced security to the payments ecosystem while maintaining a seamless customer experience.

Under the new framework, companies and service providers bear greater responsibility to ensure payments are being sent to, and collected from, the intended account holder. This focus on confirming payee identity has prompted the need for data-driven solutions on a global scale.

Understanding the difference between PSD3 and PSR

Both PSD3 and PSR offer unified frameworks to streamline and standardize the payment process for traditional and non-traditional service providers, as well as to ensure accountability for consumer safety. The difference between them is that PSD3 is a directive that sets out certain results that must be achieved but it can be interpreted and implemented differently by each EU member state. PSR, on the other hand, is a ruling that is binding and directly applicable to all EU member countries.

Businesses bear more responsibility for fraud prevention under PSD3

The inception of Open Banking was a result of the ripple effect of the second Payment Services Directive (PSD2), which fostered a wealth of innovation among fintechs and digital banks. This trend continues with the introduction of PSD3, which mandates information sharing among bank and non-bank payment service providers (PSPs) to improve fraud protection and bolster consumer confidence. Technology providers continue to respond with new and better solutions to meet the needs of PSPs and third-party providers who now bear full responsibility for fraud, unless they can demonstrate their efforts to prevent it.

The importance of passive and continuous authentication

The key to winning in this ever-evolving payments landscape is by offering frictionless customer experience on the front-end while using the right technology resources behind the scenes. The companies that thrive will be those that employ effective tools to protect consumers against fraud without compromising data privacy or ease of payment. Successfully synchronizing the use of technology and data intelligence means that players in the payments space can and should strive for a holistic combination of passive and continuous authentication.

LexisNexis® Risk Solutions dedicates considerable resources including its global data intelligence assets to support clients in these areas. For example, our newest solution Bankers Almanac® Validate™ Safe Payment Verification enables users to verify personal and business beneficiary bank account names or status on a global scale. By seamlessly and securely confirming that account details are routed to the true intended end-recipient for cross-border and domestic payments, companies can combat APP and other fraud and solidify customer relationships.

Benefits that go beyond fraud mitigation

Mitigating fraud is a key benefit of this new technology but not the only one. Businesses spend a stunning $2.7 trillion each year processing invoices manually.ii Strengthening payee authentication capability minimizes errors and leads to better straight-through processing rates, reducing costs and allowing for better liquidity management – particularly important in this high interest rate environment.

Looking toward the future

The ever-changing payments landscape poses risks but also invites endless opportunities for innovation. Customer demand has forced the marketplace to become more efficient. Regulators are stepping in to ensure the onus for fraud prevention remains with suppliers, and fintech companies continue to introduce solutions to meet global demand.

Successful global payment schemes, such as PIX (Instant Payment System) in Brazil and UPI (Unified Payments Interface) in India, serve as inspiration to the EU as it moves toward a more dynamic, integrated and user-centric payments network. Beyond Europe, amid geopolitical upheavals, society’s growing demand for controlling financial crime and ensuring transparent transactions will persist.

How LexisNexis® Risk Solutions can help

Organizations are all striving for the ultimate north star: consumers enjoying a seamless experience with the added confidence that their information and transactions remain secure.

Here at LexisNexis® Risk Solutions we have gone beyond the traditional domestically focused tools to offer international solutions that bring their substantial global data capabilities to bear. Whether you are looking for solutions that enable common APIs for Verification of Payee, Confirmation of Payee or cross-border account verifications, Bankers Almanac® Validate™ Safe Payment Verification delivers safe, seamless and one-stop account-level confirmation on a global scale.

In case you missed it, make sure to watch our recent interview with Finextra TV, where we discuss the Top 5 Payments Trends to Watch this year!


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