Payment regulations basics: What every online business in Europe should know

Running an online business in Europe, you can’t ignore the strict rules for transaction processing. A frustrated customer whose payment was declined for no apparent reason – that’s often what non-compliance looks like on the surface. And that’s just the tip of the iceberg.

In this article, we’ll go over the basics of European payment regulations, breaking down how to stay compliant and keep transactions secure.  

Why payment processing regulations matter for online businesses

Regulations set the standards for secure payments across the industry. Compliance with these standards is non-negotiable for processing transactions. Here’s how it works. When a customer tries to pay, your gateway sends a request to the user’s bank. The latter then verifies the security of this request. If your setup doesn’t support Strong Customer Authentication (SCA), which is mandatory under EU rules, the bank can’t verify that the actual payer authorised the transaction. And to avoid the risk, the payment will not be processed. As you can imagine, it would be hard to run a business if your customers can’t actually pay you.

On top of that, non-compliance carries severe legal consequences. EU regulators can fine a company up to 4% of its annual revenue for data breaches. Moreover, under the latest directives, such as NIS2, executives face personal liability: a director can be fined or even banned from managing companies in the future.

Key regulatory areas

To operate in Europe, you need to comply with specific regulations. Let’s take a closer look at what they are and how you can meet all requirements.

Anti-Money Laundering (AML) & Know Your Customer (KYC)

Before your bank or payment service provider (PSP) allows you to accept payments, they must verify that your business is legitimate through KYC procedures. Typically, a provider requests:

• A valid ID and a selfie for a liveness check.
• Proof of address and company registration.
• Details about the Ultimate Beneficial Owner (UBO).

Depending on your industry and transaction volumes, you may also be required to use KYC procedures to verify your payers.

Anti-Money Laundering is an ongoing process of monitoring transactions to ensure that all financial activity is legitimate. According to the AML protocol, payment providers use algorithms and manual reviews to spot suspicious patterns. They look for:

• Unusual speed – a sudden, massive spike in the volume or frequency of sales.
• Structuring – breaking one large payment into many small ones.
• High-risk geo – receiving funds from offshore zones or countries with weak financial oversight.
• MCC mismatch – processing payments for services that don’t match your registered business category.

In case systems spot a “red flag”, your account may be temporarily frozen. To resolve this, you’ll need to provide an invoice, a signed contract, or proof of delivery to confirm the funds’ legitimacy.

Data protection

In Europe, privacy is key. The General Data Protection Regulation (GDPR) is a set of rules that dictates how you collect, store, and use your customers’ personal information. You must have a clear Privacy Policy and ask for explicit consent before sending marketing emails. To ensure secure payments, you need to be very careful with how you store names, addresses, and transaction histories. Handling this data carelessly can lead to massive fines.

Security and Authentication 

If you have ever confirmed a payment in your banking app, you’ve met Strong Customer Authentication (SCA). Under the PSD2 directive, most online payments in Europe require at least two forms of verification. They include:

• Something you know – a password, a PIN, or an answer to a security question.
• Something you have – a mobile device, a smartcard, or a physical token. 
• Something you are – biometrics like Touch ID, Face ID, or Voice ID.

3D Secure (3DS) is the primary technology for meeting SCA requirements for card payments. It adds that extra verification step during checkout. While older versions relied on SMS codes, the modern one supports biometrics, push notifications, and even “invisible” verification that happens in the background. Simply put: SCA is the legal rule, and 3DS is the technical tool used to follow it.

Open banking

Open banking allows banks to securely share data with authorised providers. This technology powers the Pay by Bank solution, which is mainstream in the UK, Spain, and the Netherlands, thanks to its speed, convenience, and security. And its popularity is growing stronger across the continent under the newest regulations. 

Offering open banking solutions has two major advantages for merchants. First, having this option at checkout helps align with local payment preferences and win over European customers. Second, the business gains near-instant payment processing and lower chargeback risk.

Payop offers its own Pay by Bank solution. It allows customers to pay directly from their banking apps, keeping sensitive data protected. A perfect option for secure payments. 

Consumer rights

European laws make online shopping fair and transparent for customers. They generally have 14 days to return any purchase. In the UK, users have 30 days to return faulty goods and receive a full reimbursement. For digital content, the right to refund usually ends after the download. And you have to clearly warn your customers about it. In addition, there should be a one-click withdrawal button on your website to make cancelling subscriptions as easy as possible.

Quality and honesty are mandatory, of course. All digital products must work bug-free and receive regular updates, or the merchant will owe the customer a fix or a refund. Physical goods must carry a minimum 2-year guarantee. When running sales, you must compare discounts to the lowest price from the last 30 days to avoid fake promotions. Following these rules builds trust and protects the business from heavy fines – up to 4% of annual turnover in the EU and 10% in the UK.

The future of secure payments: Upcoming EU regulations

Technology is moving fast, bringing both new opportunities and new risks to online payments. That’s why EU Regulators are constantly updating mandatory security measures and introducing new rules for businesses.

PSD3 & Payment Services Regulations (PSR) 

EU regulators are on track to finalise the PSD3 and PSR frameworks by mid-2026. While the new rules won’t fully apply until 2027 or 2028, businesses should start preparing now.

Built on the PSD2 foundation, the new PSD3 and Payment Services Regulations (PSR) improve security and consumer protection across Europe. Expect stricter fraud-prevention rules and stronger refund rights for victims of scams. The new rules also force banks to provide reliable APIs, making third-party payment apps faster and more reliable for everyone. In addition, instructions for providers to prevent cyber threats are clearly defined, helping make online transactions even more secure. 

Instant Payments Regulation (IPR)

The IPR is a new EU law that makes instant transfers a standard. While banks in the Eurozone already implemented these rules in 2025, the regulation becomes mandatory for providers from April 2027. This law is a game-changer for open banking, requiring Pay by Bank transactions to be processed within 10 seconds. 

The Verification of Payee (VoP) is a core part of the IPR. Under VoP standards, systems must instantly check the recipient’s name against their IBAN before the customer authorises the transaction. It helps prevent misdirected payments and builds customer trust in open banking.

Navigate payment regulations easily with Payop

Navigating the complex web of European regulations can be overwhelming, but the right partner makes all the difference. At Payop, we prioritise secure payments and regulatory excellence. With us, you can focus on growing your business while staying fully compliant.

Here’s what we offer:

• Multi-layered security: Advanced anti-fraud solutions work in the background, ensuring safe payment processing. 
• Real human support: From day one, a dedicated account manager will guide you through onboarding and answer any questions you have.
• Reporting and analytics: Easily generate reports with all necessary data in your dashboard.
• Global reach: Access 200+ payment methods, including alternative options, through a single integration.

Contact our team at sales@payop.com to learn more.