Everything You (N)ever Wanted to Know About PSD2 Exemptions

Nearly four years after the enforcement of PSD2, many merchants with EMEA traffic are still grappling with 3DS, frictionless 3DS, and exemptions. This challenge was a discussion topic at a recent MRC conference, where I had the pleasure of leading a session. Here are the main takeaways.

3DS Still Has a Painful Impact on Revenue

Despite consumers increasing familiarity with 3DS, 3DS abandonment continues to be a significant concern. In France, Germany, and Italy, abandonment rates stand at 24%, 21%, and 23% respectively.

These high abandonment rates translate directly into lost revenue opportunities for merchants. When customers abandon transactions due to 3DS friction, it impacts immediate sales and potentially harms customer loyalty, leading to a longer-term negative impact on revenue.

When to Leverage Exemptions

Requesting exemptions for every transaction is both expensive and inefficient. If an exemption request fails, the bank may either issue a soft decline and request a challenge or a hard decline, resulting in a lost transaction.

So, why request an exemption if the bank is likely to reject it?

Instead, you should consider consumer, processor, and bank preferences – while ensuring regulatory compliance. For instance, knowing that some banks prefer 3DS for specific segments can lead to higher authorization rates when 3DS is used.

Understanding the Differences Between Frictionless 3DS and Exemptions

The main difference between frictionless 3DS and an exemption is the chargeback liability shift. With frictionless 3DS, your business can benefit from a seamless customer experience and banks assuming liability for chargebacks.

Forter data shows that 70% of transactions under €30 can be processed frictionlessly. This allows many low-value transactions to enjoy smooth processing while transferring liability to banks.

By identifying which issuers and transactions will likely qualify for frictionless 3DS, you can reduce chargeback risk and enhance the customer experience.

Optimizing 3DS Payload When Initiating 3DS or Exemptions

Why do banks decline good transactions? Often, it's due to insufficient data. Banks lack the customer insights that merchants have, leading to false declines and lost revenue.

The 3DS protocol allows the sharing of over 150 data points. By optimizing the 3DS payload with data like shipping address, name, email, and IP address, banks are more likely to request frictionless 3DS and make more accurate risk decisions, reducing false declines and improving customer experience.

Key Recommendations

• Maintain a Low Fraud Rate: Implement robust fraud prevention to qualify for exemptions, reducing the need for 3DS authentication.
• Use PSPs/Acquirers with High Exemption Thresholds: To gain more flexibility, choose partners that offer the highest exemption threshold (500 EUR).
• Tailor Your Exemption Strategy: Align your strategy with issuers', processors', and customers' preferences to optimize authorization rates and the overall customer experience.
• Consider Customer Retries: Develop a strategy to maximize success on additional transaction attempts if the first attempt fails.

By following these best practices, you can increase revenue and grow your business while ensuring a seamless experience for your customers.

About Forter

Forter(opens in a new tab) is the Trust Platform for digital commerce. We make accurate, instant assessments of trustworthiness across every step of the buying journey. Our ability to isolate fraud and protect consumers is why Nordstrom, Instacart, Adobe, Priceline and leaders across industries have trusted us to process more than $1 trillion in transactions. Our deep understanding of identity and use of automation helps businesses prevent fraud, maximize revenue and deliver superior experiences for their consumers. Visit Forter(opens in a new tab) to learn more.