Follow these 4 steps to ensure your marketplace business is PSD2 compliant
The impact of PSD2 after it came into force last year was significant. In fact, many businesses are still playing catch up, or worse, not fully realizing the opportunity available to them.
Marketplace businesses have had to adapt more than most to the new regulations. Marketplace businesses are e-commerce platforms that provide payment services directly or via a PSP to buyers and sellers.
Following the introduction of PSD2, becoming compliant is absolutely essential for any marketplace business operating across the EU. We’re sure you already know this, but are you confident that you can get your marketplace business there quickly and safely?
To help you through this process, this article will walk you through the simplest route to PSD2 compliance, as compiled by the experts at 2knowlab.
4 steps to PSD2 compliance
Before we launch into the nitty gritty detail, it is important to understand the various routes to PSD2 compliance available to marketplace businesses. Broadly speaking: there are 3.
1. Change your business model to qualify for Commercial Agent exemption
2. Partner with a specialized marketplace Payment Services Provider (PSP)
3. Obtain a marketplace PSP license under PSD2 regulations
Straight away, option 1 will be off the table for 99.9% of marketplace businesses. The logistics and cost involved do not make it an attractive proposition.
Commercial agent exemption only applies if an e-commerce platform acts on behalf of only the buyer or only the seller, is authorised by an agreement and negotiates or concludes the sale or purchase of goods or services. If all 3 of these criteria are met, the e-commerce platform must register with a local regulator before they can become fully compliant.
This is an arduous process and does not fit with most e-commerce business models. Equally, option 3, obtaining a license, can be a costly and high-risk move. The total cost to obtain a license can exceed €200,000 with no cast iron guarantee of success at the end of the process.
Because of this, we advise our clients that partnering with a specialized marketplace PSP is the easiest, fastest, and most cost-effective route to PSD2 compliance, and we would advise you the same.
So, let us take a look at that route in more detail.
Step 1 – Assess Your Current Situation
To start with, you must gain a full understanding of your current end-to-end payment process. This involves collecting a lot of data including the number of payments in and out, number of sellers, payment methods etc.
You should also define your reporting and integration requirements, the degree of manual work involved in your current system plus existing chargeback and fraud management processes.
If you are intimately familiar with your processes then you may be able to get this done on your own, but pulling in expertise from other departments will provide useful context and help to fill in any gaps in your overview.
Step 2 – Define the PSD2 Compliant End-To-End Process
Next, it is important to define an end-to-end PSD2 compliant process. To do this effectively, you will need to have a clear picture of what the buyer and seller customer journeys will look like after the migration is complete.
You will also need to incorporate your business rules regarding pricing and pay-outs as well as your seller onboarding process. All this will need to be mapped to a PSD compliant model, so a thorough understanding of the compliance requirements will prove really useful.
A top tip here is to look to automate as much of the process as possible during this stage – this will create a process much more efficient on time and other resources within your business.
Step 3 – Critically Evaluate your Options
Now it is time to review the options in line with your findings from steps 1 and 2. Your aim here is to identify which marketplace PSP solution is best suited to moving you seamlessly from your current state to your PSD compliant ideal state.
This is the step that most marketplace businesses struggle and make mistakes with – often costly ones that cannot be fixed easily.
There are limited options out there when it comes to choosing a marketplace PSP but despite this, understanding which ones best suit your situation is challenging.
Try to define your key decision criteria and any ‘red line’ features you cannot live without and use this to draw up a shortlist.
We always advise checking any available references from other marketplace businesses using one of your shortlisted PSPs.
Step 4 – Make an Informed Decision
With the bulk of the work complete, your final task is to decide which marketplace PSP fits your requirements the best and create a business case, migration, and implementation plan.
A plan is crucial to ensure that the migration to, and implementation of, your chosen PSP is predictable, poses minimal disruption to your business and moves you swiftly and successfully to a PSD compliant state.
Again, expert knowledge of the different marketplace PSP providers is invaluable here. You do not want any last-minute surprises or obstacles derailing your carefully laid plans and causing delays for your business or your customers.
Get the support you need to navigate this 4 step process from experts in PSD2 compliance
2knowlab provides expert consultation on every step of the above process to guarantee you make the right choice of PSP for your business and the migration to a PSD compliant process is as smooth as possible.
Fill in our contact form to find out how we can help your marketplace business thrive under the new PSD2 regulations.