Why travel businesses need to be prepared for further PSD2 legislation.
February 14, 2019
In January 2018, the process of surcharging – extra fees of up to 20% that businesses levied on card payments – was banned under the European Payment Services Directive (PSD2). The roll out of the new regulation has forced companies across all industries to absorb the additional cost from transactions or redirect the cost back to the consumer. Concerns were voiced from the travel industry, in particular, as it had become common practice for companies to apply surcharging as part of their operations, particularly travel agents with big-ticket items and already slender margins.
PSD2 also brought with it Open Banking to the UK, which required banks to open up their payments’ infrastructure and customer data to third parties. This legislation has paved the way for businesses to develop new payment options for customers – and has been welcomed by the travel industry.
New PSD2 legislation on the horizon
But the change is not over. There is still more to come from PSD2. In September 2019, PSD2 will introduce Strong Customer Authentication (SCA), which adds an additional layer of security when making electronic payments or transactions.
- The impact on consumer payments: While contactless will not be impacted due to the €50 payment threshold, or instore chip & pin for values above €30, the new regulation will require a two-factor authentication for online purchases or credit transfers. Consumers will be asked to provide either something they know (a password or PIN code); something they own (a card, a mobile phone); or something they are (biometrics, e.g. fingerprint or iris scan). Since more and more people now buy their holidays online or make a credit transfer in-store or on the phone, this could impact the travel industry more so than others such as retail, for example. While travel intermediaries must ensure they conform to two-factor authentication (2FA), it’s also critical that they work with financial institutions or card providers that make two-factor authentication a seamless, easy experience to encourage repeat purchases from customers.
- The impact on business-to-business payments: If travel companies were to pay one-off payments to other businesses, they would be required to use 2FA. However, on the whole, merchant-initiated transactions such as direct debit where a contract or an e-mandate agreement has been signed between the payee and the payer, or virtual cards, do not require separate authentication. However, the latter trumps debit cards when it comes to overall value. If travel agencies use virtual cards or Virtual Account Numbers (VANs), not only do they avoid having apply SCA, but they can also improve their operational efficiency and reduce the complexity and cost of making a payment to a supplier. Additionally, they can create value through faster, easier and safer payments that could be used to offset the cost of accepting the payment from the customer (card surcharging) without disrupting their experience.
Surcharging restrictions came first in January 2018 and will be followed by SCA later this year, so you can be sure that the European Directive PSD2 will continue to introduce new regulations to protect businesses and consumers alike well into the future. To remain competitive and protect reputation and trust, travel intermediaries must continue to provide their customers with a seamless payments experience, while also introducing technologies such as virtual cards that will help facilitate smoother B2B transactions.