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European Online Transaction Rule Revised after Payments Industry Complaints

After absorbing hundreds of complaints from the payments industry, the European Banking Authority will relax its pending customer authentication rules for online transactions. The new rule, which requires two-factor authentication, will apply to transactions of €30 (US$32) instead of €10 (US$10.60), according to Andrea Enria, the authority’s chair. But given the rise in popularity of online shopping, 30 euros may not be a high enough threshold to assuage industry concerns.

Enria described the change during a Feb. 21 speech in London about the European Union’s revised  Payment Services Directive, or PSD2, which calls for “strong customer authentication” for online payments and is set to take effect on Jan. 13, 2018. The authority, via industry feedback, has “identified 300 distinct concerns and clarification requests” regarding PSD2. “Each of these concerns will be listed in a 100-page feedback table that we will publish as part of the final draft,” she said.

Among those industry complaints was opposition to the authentication plan for online transactions, with critics including such major players as Visa and the Prepaid International Forum. Visa said the proposal that included the 10-euro limit before requiring two-factor authentication would have made online checkout needlessly complicated for consumers. In a letter, the Prepaid International Forum said the plan would have resulted “in an increase in consumer harm by reducing customer trust in their payment methods, the choices open to them and restricting competition.” The forum’s letter to the authority outlining its concerns was signed by 39 Europe-based groups that represent online merchants, the leisure and travel industry, payments, telecoms and other areas.

Average order sizes for Europe tend to be much higher than the new threshold. The average basket size stood at about €60 (US$63) last year, according to the Centre for Retail Research and RetailMeNot. That represents a 6 percent increase from the previous year. Still, there is some evidence that as consumers become more comfortable with online shopping, they are making smaller, and perhaps more frequent, transactions. For instance, in France, the average e-commerce order size stood at about €78 (US$82) in the fourth quarter of 2016, down about €6 from the same period on 2014, according to France-based e-commerce association Fevad. “This confirms the normalization of buying online, and the average amount is gradually approaching that of in-store purchases,” it said.

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