As the financial sector grows in size and digital complexity, the regulatory environment becomes tougher.
New McKinsey research reports that global payment revenues increased by double digits for the second consecutive year, growing by 11% to surpass $2.2 trillion. Simultaneously, the recent Vixio Payments Compliance Outlook reveals that 90% of compliance teams feel overwhelmed on a monthly basis.
This rapid growth of the payments sector undoubtedly impacts the regulatory landscape, requiring all businesses that handle payments to improve their approach to compliance.
With payment technology development advancing further every day, the time is now for merchants to consider the reality of payment compliance in the modern digital world.
What is Payments Compliance?
Succinctly defining payments compliance is difficult, as the term depends highly on where a business is headquartered and to what degree the business deals with payment data.
Broadly speaking, payments compliance refers to the varied rules, regulations, and laws that set and govern the best practices for payments. This includes an array of standards for different payment activities, including facilitating transactions, storing payment data, and monitoring for fraud.
While payments compliance encompasses many aspects of business, most payment regulations focus on three main components:
- Fraud Prevention: Fraud prevention, such as AML and KYC, are processes implemented to detect and deter fraudulent payment activities. Strong fraud prevention strategies are necessary for safeguarding financial transactions and payment data from unauthorized access, deceitful business practices, and financial criminals. In the age of digital payments, fraud prevention has become a more pressing issue for businesses to prioritize. Without ensuring a robust approach to fraud prevention, businesses can find themselves on the receiving end of not only massive fraud incidents but also sometimes severe regulatory consequences.
- Data Privacy: Ensuring the secure and lawful handling of payment data is of the utmost importance in today’s digital payment space. As the payments industry embraces digital transformation and tech-based services incredibly rapidly, businesses dealing with payments must consider how their payment infrastructure can keep sensitive information safe throughout the payment process. Additionally, each region has specific data privacy regulations that businesses must account for within their data privacy strategies.
- Consumer Protections: Along with protecting customers’ private data, payments compliance laws also set key standards for establishing consumer rights. This can include providing transparent fee structures, creating clear terms and conditions in payment agreements, and ensuring fair treatment in all financial transactions. With the growing popularity of digital finance and open banking, regulators are placing even greater emphasis on consumer protections.
Who Regulates Payments Compliance?
Payments compliance is complex, requiring many regulatory bodies to achieve comprehensive oversight. Both global and region-specific regulations exist, making it a necessity for any business dealing with payments to understand both local and international compliance standards.
Let’s go over four of the most prominent payment regulations currently in place:
1. PCI DSS
The most prominent global regulator of payments is the Payment Card Industry Security Standards Council, or PCI SSC for short.
Formed by several of the world’s biggest payment card service providers — including American Express, Discover, Visa, MasterCard, and JCB International — the PCI SSC develops and maintains a global compliance standard for payments known as the PCI Data Security Standard (PCI DSS).
The PCI DSS aims to secure the payments industry and build greater overall awareness of payment security through six main objectives:
- Build and maintain a secure network and systems
- Protect cardholder data
- Maintain a vulnerability management program
- Implement strong access control measures
- Regularly monitor and test networks
- Maintain an information security policy
Across these six goals, the PCI DSS imposes 12 key requirements for businesses handling payments and payment information. Though the PCI SSC is responsible for developing these standards, the enforcement of PCI compliance falls to the organizations managing individual compliance programs (such as payment brands or acquirers).
While you’re here, check out Spreedly’s additional resources on PCI compliance:
- PCI Compliance Checklist
- The Real Cost of PCI Compliance
- PCI DSS v4.0: What’s Next?
- The Master Guide to PCI Compliance
The Payment Services Directive 2.0 (PSD2) is a regulation in the EU that defines standards for creating a more unified and effective payments market in the region.
PSD2 — which went into effect in 2018 — aims to achieve four main goals:
- Contribute to a more integrated and efficient European payments market
- Further level the playing field for payment service providers by including new players
- Make payments safer and more secure
- Enhance protection for European consumers and businesses
While this regulation is specific to the EU, any organization conducting cross-border business within the region must also consider the impact and requirements of the legal standard.
Currently, the third iteration of PSD2 (to be called PSD3) is in development. This updated version of the regulation seeks to fulfill the primary objective of adapting the EU’s financial sector to the ongoing digital transformation of financial services around the globe.
Additionally, EU regulators are working on a new legislation in conjunction with PSD3 known as the Payment Services Regulation, or PSR for short. The goal of PSR is to “ensure consumers can continue to safely and securely make electronic payments and transactions in the EU, domestically or cross-border, in euro and non-euro.”
3. 3DS2 & SCA
3D Secure 2.0 (3SD2) and Strong Customer Authentication (SCA) are aspects of the PCI DSS and PSD2 that are noteworthy enough to warrant special attention from regulators and businesses alike.
3SD2 is a multi-factor authentication protocol required by the PCI DSS, while SCA is an identity verification requirement of PSD2. Both 3SD2 and SCA aim to improve and simplify the customer authentication process. Although 3SD2 is technically a component of PSD2, the inclusion of the protocol strives to provide a more efficient and effective solution to SCA.
Dive deep into the specifics of 3SD2 and SCA with Spreedly’s free resource for Understanding the Basics of European Regulations.
The General Data Protection Regulation (GDPR) is a European regulation dubbed the “toughest privacy and security law in the world.” Along with regulating members of the EU, the GDPR requirements are imposed on all businesses targeting and collecting data from people within the EU.
GDPR is a major development in the payments sector, marking the modernization of data privacy in the wake of massively transformative digital advancements. The global impact of GDPR is unmistakable, with many other jurisdictions following suit and modeling their own privacy regulations after GDPR.
Among the many legal components of this regulation, GDPR defines seven key data protection principles:
- All data processing must be lawful, fair, and transparent to the data subjects.
- Data must be processed for legitimate purposes specified explicitly to the data subject upon collection.
- Organizations should collect and process only the data deemed absolutely necessary for specified purposes.
- Personal data must be kept accurate and up to date.
- Organizations may only store personally identifying data for as long as necessary for specified purposes.
- Processing data must be completed to ensure appropriate security, integrity, and confidentiality (such as through tokenization).
- Data controllers are responsible for demonstrating GDPR compliance with all the above principles.
How Payment Orchestration Leads to Exceptional Payments Compliance
Keeping up with evolving regulations is no joke — and maintaining compliance requires global expertise.
For many merchants, the scope of payment compliance quickly becomes too much to handle independently as their business grows. Luckily, services like payment orchestration help not only simplify compliance but also streamline and enhance an entire payment infrastructure.
At Spreedly, our payment orchestration solution aligns with all the latest regulatory changes, including PCI DSS, PSD2, and GDPR. With services like Advanced Vaulting and Payment Tokenization, Spreedly has the capabilities you need to stay ahead of payments compliance. Plus, Spreedly assists in minimizing the overall burden of regulatory compliance with built-in platform support.
Future-proof your compliance strategy with Spreedly — chat with our team today to get started.