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All hail blockchain: A perfect companion for new Payment Services Directive

Written by Mark Reed on 12 August 2018

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Security checks will be beefed up for contactless payments in the new EU Payment Services Directive (PSD2). This means that everyone that has got used to the bleep and go routine will have to accept that there will possibly be identity verification checks every few times their card is used daily.

Not only are consumers going to get frustrated when their usually rush around on a lunch break and grab everything from coffee, sandwich and naughty snack to evening take away or bottle of wine. The banks and other payment institutions will also be having to rush around to make changes to their payment protocols and terms and conditions to ensure they are complying with this new directive. Some credit providers like Mastercard have even started trialling finger print scanning machines in some places. Ultimately this whole change will be a huge cost to the money men and we all know who will brunt the cost of this……. THE CONSUMER.  

However, there may be a caped crusader known as blockchain which could cleverly work alongside this new directive, but how???? First it is necessary to fully understand exactly what the EU second payment service directive and more notably the Regulatory Technical Standard (RTS), within the PSD2, that comes in to force in 2019.

The main objective of the RTS is outlined in the European Commission Fact Sheet. It states that: -

‘Market players need specific requirements to comply with the new obligations in PSD2. To this end, PSD2 empowers the Commission to adopt regulatory technical standards (RTS) on the basis of the draft submitted by the European Banking Authority (EBA). The security measures outlined in the RTS stem from two key objectives of PSD2: ensuring consumer protection and enhancing competition and level playing field in a rapidly changing market environment. Consumer protection is achieved through increasing the level of security of electronic payments. This is why the RTS introduces security requirements that payment service providers must observe when they process payments or providing payment-related services. Payment services providers include banks and other payment institutions. These standards define the requirements for strong customer authentication and the instances when payment service providers can be exempted from such authentication.’

It appears that consumers will have to confirm who they are when the number of payments either reaches 5 consecutive payments, or less than 5 payments reaching €150. This will be performed through the Strong Customer Authentication (SCA) process, which involves the consumer providing at least two of the following independent authentication elements:

Something only the customer knows (such as a PIN)

Something only the customer has (such as a card, hardware token, mobile phone or other device)

Something only the customer is (such as a fingerprint, facial recognition or iris scan)

Online payments, the SCA process will mean that at least two of the elements will have to be used.

Already I’m sure your mind is putting two and two together and working out how blockchain can help with this. We know that blockchain was a bi-product of Bitcoin and is used synchronously with other cryptocurrencies on a daily basis. However, this process works so well because is incredibly secure for consumers. One of the big pulls for consumers is that they do not have to divulge any information such as payment details which they do with retailers or other organisation when using conventional methods, even contactless. This means that consumers would be back in the driver’s seat when processing payments. The ball is in their court and their information/data is decentralised within the blockchain, rather the data being stored in the retailers, or banks databases. One point raised by Alastair Johnson, the CEO of Nuggets, an e-commerce payments and ID platform, is that

“They are in full control to ideally not have to share or store anything. However, if they choose to do so, they can use attestations, digital tokens or references to do so, rather than continually disseminating their data to various third parties. When it comes to making payments, these are private and secure. They are also as quick as contactless but don’t require the production and distribution of expensive new fingerprint-scanning cards. Not only that, biometrics are already incorporated into blockchain-based payments, which eliminate the need for passwords.”

This is coming, but at this stage, blockchain technology is not joining the train which means across Europe consumers will expect a big change in fast, contactless payments. Unfortunately, it can be like banging your head against a brick wall when convincing people about using blockchain technology for the better. There are still those who associate it with the dark web and would need more trialling a reassurance of blockchain technology before implementing it within their network.

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