How Delegated Authentication and Payment Authentication work with PSD2


Today’s retailers are current on eCommerce developments from both the customer and payment perspectives. They are optimizing their checkout process to satisfy customer requirements and expectations. They customize the buying experience, from onboarding to conversion, increasing their responsibility. However, they do not have complete control over determining which authentication is optimal for their consumers.

The effect of PSD2 on conversions and revenue generation has compelled retailers to reconsider their control over authentication. Moreover, the pressure for shops to prepare for delegated authentication rose. PSD2 must be complied with by all businesses operating inside the European Union (EU) and European Economic Area (EEA). They must implement a stronger standard of Strong Customer Authentication (SCA). This involves forcing users to undertake multi-factor authentication, often implemented using 3D-secure (3DS). Directly affected are revenue creation, profitability, and customer happiness.

To mitigate the effects of PSD2 and 3DS on their operations, a great number of retailers have optimized their payment solution suite. In addition, incorporate payment optimization solutions to raise authorization rates and improve the customer checkout experience. These items allow retailers to lessen the effect of SCA on their customers. By developing a streamlined checkout process that is PSD2 compliant. This is often accomplished via exemptions.

If a merchant has an exemption engine, they may use it to circumvent SCA rules. Continue offering customers the streamlined checkout experience to which they have grown accustomed. The most prevalent exemption type, Transaction Risk Analysis (TRA), is based on the risk of the transaction. This is determined by taking into account the consumer’s behavioral habits, the transaction value, and the merchant fraud percentage. Nonetheless, not all transactions qualify for an exception.

When a business conducts non-exemption-eligible transactions, customers are still required to undertake full SCA verification, which increases friction. This significantly influences the customer experience and increases the likelihood of client defection. This is because the payment ecosystem evaluates each transaction separately. While the merchant may take into account behavioral aspects, such as whether or not the consumer is a repeat purchaser, the most important component is the customer’s purchasing history. This increases their trust in the transaction’s integrity and their desire to streamline the checkout process for their customers.

Below is an infographic from LoginID entitled “How Delegated Authentication and Payment Authentication work with PSD2.”


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