Insight & Analysis

Press release: Top three challenges that payment service providers face

Published: Oct 2023

9th October 2023 – The success of merchants and payment service providers (PSPs) are interdependent. In an increasingly growing ecommerce world, there is a clear focus on payments. PSPs are faced with the task of remaining competitive within a vast market.

Press release news paper

Within the last few years, the booming ecommerce world, the new SCA regulations and a ground war in Europe have posed certain online payment challenges for PSPs, especially when their merchants are venturing into new territories. Longer cross-border payment settlement times, compliance with financial regulations and ecommerce fraud are the top three. Here is how PSPs can overcome them.

For PSPs to stay competitive within a growing market, they need to provide competitive rates and value-added services (VAS) that maximise merchant retention.

1. Longer cross-border payment settlement times

Payments have entered a new era of transformation. New payment methods are emerging on the horizon and customers are expecting merchants to provide them with a wide variety of options to choose from. The demands are for a quick, convenient and efficient payment process.

Whenever merchants are expanding internationally, they need to optimise their payments stack for the location they’re venturing into. Each region and country has its own payments preferences, and research into that will position merchants at the forefront.

But the struggle doesn’t end with expanding the payments stack. PSPs, which are responsible for delivering a fast and convenient payments service, are hindered by slow speed at which international transfers are processed. Research by VISA shows that it takes U.S. and UK businesses 55% longer to receive cross-border payments than domestic payments.

The research also found that consumers investing in real-time payments and digital wallets to close that payables gap and enable faster service. Suppliers are also recognising the importance of accelerated service and are embracing digital invoicing tools and payments.

Streamlining the cross-border payment settlement processes lies with payment orchestrators. Nevertheless, third party providers can help improve the payment flow by leveraging automation and machine-learning to instantly approve good orders taking knowledge from a rich commerce network.

This will help PSPs stand out among their competitors and attract payment decision-makers with their value and high authorisation rate.

2. Compliance and taking advantage of regulations

Each country has its own regulations when it comes to payments and finances based on their individual know your customer (KYC) and anti-money laundering (AML) standards. They are set by the government and aim to provide a strict regulatory framework. When expanding into a new territory, merchants need to familiarise themselves with those regulations to comply with them and avoid complications.

Nevertheless, some countries lack payment security protocols or a regulatory framework, resulting in a challenging landscape for PSPs to navigate.

If merchants are operating in the EU, they will need to be compliant with PSD2 – a legislative framework that secures safe payments exchanges but under stricter regulations. As of 2020, customers in the EU are required to complete a two-factor verification at checkout as part of Strong Customer Authentication (SCA). This adds not only an extra layer of protection but also causes friction in the customer journey.

To help merchants increase conversion in a compliant way, PSPs can liaise with a third-party provider that leverages a range of tools that the regulation allows, such as exemptions.

3. Ecommerce fraud damaging finances and reputation

When it comes to fraud, a holistic approach is required to tackle the complexities of ecommerce fraud. Each country has its unique fraud challenges and adapting their strategy to individual fraud profiles will help PSPs stay on top.

As ecommerce is growing, financial criminals are finding new ways to penetrate the payments system and abuse it. PSPs fraud represents serious liability issues for acquirers and merchants alike who may suffer not only financial losses but also reputational damages, penalties, or even an account shutdown. That’s why it’s critical to get a handle on fraud.

Many PSPs still have in-house risk departments that work around the clock to detect, prevent, and reduce fraud. Nevertheless, manual order review processes are time-consuming and often imply higher costs. Not to mention the risk of human error, resulting in higher revenue lost to fraud, rejection of legitimate ecommerce orders, and a growing number of chargebacks and disputes.

Working alongside a business partner that gives PSPs access to state-of-the-art solutions, empowered by artificial intelligence, data analysis, and machine learning is the ultimate solution to fraud. By accessing with a global data network, PSPs can approve more good orders and reject illegitimate ones, resulting in optimised processes and maximised revenue while reducing fraud.

In return, PSPs will be able to offer their merchants higher conversion rate, lower fraud and better customer experience.

PSPs are facing several challenges in today’s fast-paced digital world. From longer cross-border payment settlement to the complexities of compliance with financial regulation across territories and the ongoing battle against fraud, PSPs need to be proactive to stay ahead of the curve.

By focusing on optimising payments and leasing with a third-party solution, PSPs can ensure that they remain at the forefront of the payments industry and continue to provide a high-quality and reliable service to their merchants.

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