Blockchain is the answer to 2019 EU payment authentication rules

By: Alastair Johnson

9, August, 2018


Blockchain - Financial Services - Payments -

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Consumers who have become used to the convenience of contactless payments throughout their daily lives might be in for a shock next year.

That’s because of a clause in the EU’s Second Payment Services Directive (PSD2) which will be enforced from September 2019. In essence, the clause states that consumers will no longer be able to constantly make contactless payments without any other form of security check or identity verification. In fact, the most likely scenario is that they will have to confirm their identity every five times they make a contactless payment.

For a busy worker rushing between coffee shop meetings, takeaway lunches and dashes to the shops in their breaks, this will be a real pain. And for payment giants rushing to implement new payment protocols to satisfy the looming EU rules, it’s one of the biggest issues they are currently battling with.

Which is why we’ve already seen Mastercard testing cards with in-built fingerprint scanners with a number of UK banks in order to verify customer IDs. A rollout of this technology would be a major cost and inconvenience for payment giants and banks alike, which would undoubtedly be passed onto consumers in one form or another.

However, the reality is that blockchain already provides a solution that meets the needs of PSD2 and offers retailers unprecedented payment speed, security and convenience.

The new rules on contactless payments

According to the EU’s Second Payment Services Directive (PSD2), customers in stores will have to confirm their identity when either the cumulative payments amount to €150 or the number of payments reaches five, relative to when they last confirmed their ID.

This confirmation of ID relates to 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)

In addition, for online payments, the SCA process will mean that at least two of the elements will have to be used.

Both physical and online retailers fear that complying with the directive will result in delays and a disrupted user experience for customers that could lead to missed sales. The news of Mastercard’s card trials is a clear reaction to this fear.

However, blockchain-based payments that associate identity with every single payment, whether online or offline are already available. Not only that, they are a vastly more secure option because the consumer doesn’t have to share payment details with a retailer or any other company.

Why blockchain-based payments are the answer

Blockchain-based payments give power back to the consumer because they allow individuals to control their personal data rather than have it stored in the centralised databases of banks, retailers or marketing companies.

They are then 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.

Finally, it’s worth remembering that, by removing the reliance on centralised databases and moving to decentralised ledger technology, blockchain-based payments protect everyone from data breaches.

On the face of it, PSD2 changes that will be implemented next year look like a major headache for consumers and retailers alike. However, if we instead see them as an opportunity to lay the foundations of a secure and customer-centric blockchain-based payments system, everyone can benefit.


Originally published from: The Block