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How PSD2 will affect in-store payments

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On September 14th the EU will implement its new rules for electronic payments. As a result, there will be changes to how we use signatures, magnetic stripes and chip-and-go payments in-store. Here is everything you need to know about how the new rules will affect you as an in-store merchants.

The EU’s new payment service directive, PSD2, was introduced last May, with the goal of creating safer payments and more innovation in the payments market. Banks and payment service providers were, however, given until September 14th 2019 to adjust to the directive’s technical standards.

Stronger security for electronic payments

Of the new rules that come into effect in September, the mandate for Strong Customer Authentication (SCA) will have the biggest impact on the everyday lives of merchants and consumers. The SCA mandate means that customers will have to verify their identity in order to make any electronic payment. This is supposed to protect consumers from criminals being able to, for example, use stolen card information to make fraudulent purchases. In the case of card payments, the SCA mandate will only apply to cards issued in Europe, and some unmanned terminals (i.e. at toll booths and in parking garages) will also be exempted for practical reasons.

On a practical level, SCA means that customers have to verify their identity by using at least two out of three factors when making a payment. The three factors are: Knowledge (i.e. a password or PIN that only the customer knows). Possession (i.e. the customer’s card or phone) and Inherenece (i.e. using biometric features like facial recognition or fingerprint).

Contactless payments are still allowed

For in-store card payments, the new SCA rules won’t pose any big challenges. By entering your PIN after your card has been read by the terminal, you will have verified your identity with two factors (possession of the card and knowledge of the PIN). There is also an exemption in PSD2 that will allow customers to continue making contactless payments without PIN. However, this exemption will be limited to purchases for up to 50 € and if the customer makes five such transactions in a row, or reaches a combined value of 150€, PIN will be required.

To be able to use the exemption for contactless payment, your terminal’s software will also have to be updated, so that the terminal knows when to request PIN and not. If you are using a stand-alone terminal from Bambora you won’t have to worry about this since our terminal software will be updated well before September 14th. If, on the other hand, you have a terminal that is integrated with your cash register, the supplier of the cash register will also have to update their integration to our terminals to handle the new software. If you want to know the status for your specific terminals you can contact us at support@bambora.com.

Chip-and-go and signatures are affected

The exemption that allows for contactless payments without PIN will not extend to so-called chip-and-go solutions, where the customer puts the chip in the terminal but doesn’t enter his or her PIN. This means that chip-and-go will be effectively banned in Europe after September 14th. Another important aspect of PSD2 is that it doesn’t count your written signature as one of the three SCA factors. This means that card issuing banks can choose to decline card transactions that are authenticated with a written signature after September 14th.

Another technology that runs the risk of becoming history after September is the card’s magnetic stripe. Since these stripes are considered to be quite easy to copy, the European Banking Authority is expected to make the assessment that the magnetic stripe is not sufficient to prove “possession” of the card and can’t be used as one of the three factors. In practice, this would mean that you can no longer use the card’s magnetic stripe in a European card terminal.

It is important to note that all these new rules only apply to cards that are issued in the Europe. Customers from other parts of the world will still be able to pay as before with both their signature and with magnetic stripes. If you have any questions about PSD2 and how it will affect you, please contact our support.