A critical analysis of the effects of the second payment services directive (PSD 2) strong customer authentication (SCA) requirements on the airline industry

Abstract

This dissertation addresses the issue of payment fraud afflicting the Airline industry, and the serious implications of the overarching legislative solutions designed for the Payment Services Industry. The research initially breaks down the problem of payment fraud which costs the airline industry an estimated one billion Euro per-annum. A causal link had been established between the increase in ‘card-not-present’ payment fraud and the implementation of the first Payment Services Directive. This resulted in the need for a Second Payment Services Directive (PSD2). An analysis of the PSD2 and ancillary Regulatory Technical Standards has been carried out to achieve a better understanding of the Strong Customer Authentication (SCA) mechanism, which is a tool designed to address newer forms of fraud. An analysis of the SCA mechanism has also been carried out, with the objective of determining the way it functions, and the exemptions and exclusions to the imposition of this regulatory tool. The author of this work has investigated the effects of this tool on the Airline Industry. This industry has proved ideal in studying the efficacy of such an overarching legislation due to its complex ecosystem of customers, merchants, and intermediaries which have been affected by the PSD2 SCA. Through a practical scenario application, the researcher revealed the benefits and challenges imposed by PSD2 SCA on the industry. Using the support of these findings, the author proposes several improvements to PSD2 SCA, even going so far as to suggest a pre-emptive Third Payment Services Directive rather than leaving the private sector to resolve the problems caused by a one-size-fitsall legislation that has fragmented progress across the industry due to a lack of consideration for the complex industrial structures. Such an oversight when drafting such overarching legislations, may inadvertently and counteractively support the development of newer methods of fraud.