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Fraud protection and rolling out real-time payments – A balancing act

10/12/2018

There is a line of thought that suggests with the line of thought that suggests with the launch of PSD2 and increased use of TPPs, there may be an elevated risk landscape. TPPs will also be able to offer payment services to SMBs and banks existing fraud detection systems may be under pressure to cope with these new payment channels. InstaPay asked Andrea Dunlop, CEO, Merchant Acquiring Europe at Paysafe on her thoughts.

“While there is inherently risk in opening up bank accounts to third party providers, one of the main obligations banks have to undertake following the implementation of PSD2, alongside increasing innovation and delivering better customer experience, is to bring about a standardised, structured approach to bank account access and security. Currently there is little regulation to define how such access should be granted, so methods vary in their security and are often only single factor authentication.

PSD2’s API-driven approach provides a solid base from which such standardised security protocols can be built; indeed, come September 2019 PSD2’s, regulatory technical standards on Strong Customer Authentication (SCA) will enforce a two-factor authentication process on bank access and transactions. Specific standardisations on this process have yet to be published – a significant reason for the slow uptake of Open Banking – but there are already approaches soon to launch that will introduce SCA to the market, such as EMVCo’s 3-D Secure 2.0 protocol.

With this standardised SCA-driven approach regulated by law, PSD2 will actually be bringing in a more secure method of banking, while improving third party access so that the experience is vastly improved.”

Paysafe recently released its Lost in Transaction report which has an array of data on how SMBs are trying to deal with fraud. Some of the key points include:

  • 66% of SMBs now believe they are being more aggressively targeted by fraudsters compared to a year ago
  • Security (59%) now ranks as the number 1 consideration – above reliability (49%) and cost (47%) – when it comes to an ecommerce setup
  • 65% of UK SMBs don’t know how to balance security with an acceptable customer experience
  • 52% of SMBs worry that a move to frictionless payments is leaving them more open to fraud and will impact on revenue

Oscar Nieboer, CMO, Paysafe Group said: “With this week being International Fraud Awareness Week, it presents the perfect opportunity to educate online merchants of the need to balance their innovation and customer experience with the need to fully protect consumers against fraud. With UK shoppers having seen a 6% rise in fraud last year, and two-thirds of SMBs reporting that they’re being more aggressively targeted by fraudsters, security concerns continue to haunt online merchants in the UK.

However, despite the awareness around fraud risks, online merchants are reluctant to make the necessary security changes. 65% of UK SMBs admit they don’t know how to balance security with an acceptable customer experience, with businesses wanting to make the buyer’s purchasing journey as frictionless as possible. 70% of UK SMBs revealed a belief that longer verification processes ran the risk of losing customers. This was despite nearly 80% of respondents confirming their customers were happy to accept improved security measures such as two-factor authentication.

Although security (59%) now ranks above reliability (49%) and cost (47%) when it comes to many merchant’s ecommerce setup, there is still a lot to do to fully balance these strategies. One solution may be the emergence of vouchers and online cash which allow the customer to pay without sharing any financial details, an area which is likely to develop considerably, with 75% of merchants looking to offer multiple means of payment options within the next two years.”

Author: Kate Nelson