On September 14th 2019, the Second Payment Services Directive (PSD2) comes into force. The new directive is designed to make increased security around card payments online mandatory for many online payments.
In essence, PSD2 is good for buyers - because it ensures transactions are secure and authorized - but is expected to cause issues for businesses.
We recently shared our advice on what PSD2 means for software businesses with recommended steps you can take to get ready ahead of the deadline. But regardless of how conscientious or prepared you are, you could be exposed to PSD2 problems through the tools and platforms you use - and any mistakes or shortcomings will lead to declined transactions and lost revenue.
Unlike other billing providers which will expect you to perform all the work to be compliant, as a Merchant of Record, Paddle is uniquely positioned to relieve the burden of work for our sellers ahead of PSD2. With this in mind, Paddle is taking the following steps to ensure we - and therefore all of our sellers - are PSD2 compliant:
1. Integrating 3D Secure 2.0 (3DS2) to the Paddle checkout - making our best ever website payment experience PSD2 compliant
Ahead of the PSD2 deadline, the new Paddle checkout will include 3D Secure 2.0 as standard - a best practice way to collect Strong Customer Authentication (SCA). Combined with the wide range of other enhancement and improvements that the new checkout offers, buyers will enjoy a consistent experience that also meets PSD2 requirements for European transactions. We’ve also upgraded our platform infrastructure to allow us to manage 3DS2 all in one place, meaning we can quickly integrate 3DS2 while making it easier to iterate upon and improve in the future.
2. Working with our payment provider partners to ensure previous subscriptions work
We are working closely with our payment partners to ensure all renewals of pre-existing subscriptions are ‘grandfathered’, meaning they will never need SCA. ‘Grandfathering’ is when an old rule applies to existing situations, whereas a new rule will apply to all future instances. Here, subscriptions initiated before PSD2 came into force will not require SCA to renew after September 14th, 2019.
3. Implementing authentication dunning
In the event that a payment does need authentication on renewal, Paddle will ensure this experience is as smooth and effortless as possible for your customers. Ahead of the PSD2 deadline, we will be adding a new email to our existing set of dunning emails. This new email will alert the customer and encourage them to provide authorization for their subscription, allowing the payment to go through smoothly.
4. Managing exemptions
Although PSD2 includes a ‘recurring payments exemption’, there are still a number of variables which may mean a subscription plan isn’t covered and SCA will be required (learn more about exemptions here). Going forward, we will be updating our logic around exemptions to maximize payment acceptance. Having logic in place that automatically selects the right exemption based on the circumstances means more card payments are successful, in turn improving conversions.
5. Proactively responding to what banks do next
We won’t know for sure what banks plan to do until after the September 14th deadline. It may be that some banks won’t have PSD2 support in place by that time, while others may wish to receive SCA for every in scope transaction. To best support our sellers through this period of uncertainty, we will be closely monitoring and making changes to our implementation in response to what banks do. Amongst other activities, we will be continuously monitoring SCA requests to understand the effect on conversions. Above all, we will be doing whatever is necessary to put our sellers’ interests first and provide their customers with a seamless and compliant experience.
Are you having doubts about whether your billing set up is prepared ahead of PSD2? There’s still time to switch to Paddle before PSD2 comes into force. To find out more about how we can help you be compliant - and unlock your SaaS business’ growth potential - book a demo.