PSD2’s Impact on Electronic Tolling - A Detailed Evaluation

The Revised Payment Services Directive (PSD2), effective since January 2018, has revolutionised the payment services landscape across Europe, fostering competition and innovation while enhancing consumer protection. However, for the electronic toll collection (ETC) industry, PSD2 introduces challenges that could impact operational efficiency, security, and user experience. This article delves into the risks and opportunities, and explores some potential strategies to mitigate the risks while highlighting potential opportunities.

Understanding PSD2 and Its Relevance to ETC

PSD2 mandates strong customer authentication (SCA), open banking through APIs, and the regulation of third-party providers (TPPs). These changes aim to make electronic payments safer and more secure. However, for ETC systems, which rely on seamless, real-time transactions to manage traffic flow and revenue collection, the implementation of PSD2 poses several challenges.

One of the primary advantages of electronic toll collection systems is their ability to provide a frictionless payment experience. PSD2’s SCA requirement necessitates multi-factor authentication for electronic payments, which could disrupt this seamless experience.

ETC operators must also integrate new systems to handle SCA and accommodate TPPs accessing customer account information. This requires investment in technology, staff training, and ongoing maintenance.

Additionally, ensuring interoperability across different toll networks and payment systems adds another layer of complexity.

PSD2’s open banking provisions allow TPPs to access customer account information with their consent. While this promotes innovation and competition, the increasing involvement of TPPs also expands the attack surface for cybercriminals, hence ensuring robust cybersecurity measures are in place is crucial, which also adds to the operational burden due to monitoring and countering emerging threats.

Disruptions in the payment process and increased transaction failures due to authentication issues can directly impact revenue collection for electronic toll collection operators. Delays or difficulties in processing payments might lead to reduced toll compliance, with drivers either unable or unwilling to complete the necessary authentication steps.

How Can These Challenges be Mitigated?

While PSD2 presents challenges, there are measures that can help mitigate them.

To maintain a seamless user experience, electronic toll collection operators can leverage advanced authentication technologies including long-lived consents and SCA exemptions. Long-lived consents allow TPPs to initiate payments on their behalf without needing to authenticate the user for each transaction. Additionally, PSD2 also allows for exemptions from SCA, which can help maintain consent and reduce the need for frequent re-authentication. Some of these exemptions include:

Recurring Transactions: Transactions of the same amount to the same payee (e.g., subscriptions) can be exempt from SCA after the initial setup.

Trusted Beneficiaries: Users can whitelist certain payees as trusted beneficiaries, which means future transactions to these beneficiaries may not require SCA.

Low-Value Transactions: Transactions under a certain threshold (e.g., €30) can be exempt from SCA, though there are limits on the number of consecutive exempt transactions.

Corporate Payments: Payments made using dedicated corporate processes and protocols can be exempt from SCA.

What about the opportunities?

PSD2’s open banking provisions can be turned into an opportunity by electronic toll collection operators to offer enhanced services. By partnering with third-party providers, operators can provide value-added services such as real-time payment notifications or detailed toll transaction histories. Alternatively, TSPs would have the ability to expand the reach of their services - much like Telepass, with Telepass Pay - and diversify from simply providing tolling payment services.

The flip-side to this opportunity is that TSPs also face the risk of increased competition from Fleet Management Software companies (FMS), Fuel Card Issuers (FCIs), Mobility Service providers (MSPs) and even digital wallets such as Google Pay.

Final thoughts

The implementation of PSD2 undoubtedly introduces challenges for electronic toll collection in Europe, from disrupting the seamless user experience to increasing operational complexity and increased competition. However, by adopting strategic measures such as long-lived consents, seeking SCA exemption, leveraging open banking, and exploring alternative revenue models, electronic toll collection operators can mitigate these risks effectively.

Moreover, PSD2 presents opportunities for innovation and enhanced service delivery in the electronic toll collection sector. By embracing the directive’s provisions and leveraging the capabilities of open banking, operators can enhance user satisfaction, and potentially increase revenues. As the payment landscape continues to evolve, proactive adaptation and strategic planning will be key to navigating the challenges and capitalising on the opportunities presented by PSD2.