PSD2’s Impact on Fighting Payment Fraud

By Anthony Eaton, Chief Technology Officer at IDEX Biometrics

In the 3rd and final blog post in our series on PSD2, Anthony Eaton, Chief Technology Officer at IDEX Biometrics looks at PSD2’s impact on fighting payment fraud.

While criminals are continually on the lookout for their next opportunity to de-fraud the digital and financial worlds, regulatory bodies are constantly playing catch up. The second Payment Services Directive (PSD2), to be fully implemented in the fall of 2019, brings new regulations such as Strong Customer Authentication to enhance the security of online transactions.

Call center pressure will rise

While PSD2 calls for enhanced security by default through Strong Customer Authentication, it also allows for exemptions. This new approach could lead to higher demand on call centers due to blocked payments, risk assessment algorithm training issues, and increased customer friction.

Risks are already increasing

While the specific ways hackers and criminals will abuse the “unbundled banking”thatPSD2 enables is yet to be determined, financial crime experts say the risk is already increasing.

Until now, traditional financial institutions have had bilateral customer relationships, but that is changing. Industry experts believe that the drive to make payment-related data and APIs available to third parties will bring both new players and services into the market.

The increase in transaction volume and consumer demand for ultra-fast, mobile payments will put more pressure on fraud detection systems than ever before. The speed at which everything is now moving also means institutions and businesses will need to rely on advanced analytics and automation, alongside valuable technologies such as biometric authentication to manage their risk.

The biometrics edge

Biometrics, including behavioral analytics, has become a frequent topic of discussion when it comes to fraud prevention and enhanced payment security. Major financial institutions have begun testing fingerprint-scanning cards in some areas – a product that combines fingerprint scanning with traditional chip and pin card technology to verify a person’s identity when they are making in-store purchases. This is an example of how the new European payments directive may fuel growth in biometrics.

Biometric identification technology could soon find its way into financial institutions worldwide as banks look to keep their data secure. Biometrics can help financial institutions guard against account takeovers, account fraud and the other types of criminal activity that will surely follow the flow of third-party providers into the open banking payments sector.

Overall, fraud prevention is getting more sophisticated by the day, with the entry of tools such as biometric authentication. However, every new technological advancement or significant regulatory change that comes along provides criminals with a potential new pathway, and it’s unlikely PSD2 will be any different in this regard.

The previous post in our series on PSD2 looked at how PSD2 will accelerate the use of biometrics.

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