Stripe buys Touchtech to gain an edge for European security rules

Stripe has updated its products and made an acquisition to prep for new security standards it says will impact more than 300 million people, potentially giving Stripe the same kind of influence over European merchant technology that it enjoys in the U.S.

The payment technology company on Wednesday announced a deal to acquire Dublin-based Touchtech Payments ahead of a Sept. 14 deadline to shore up identity protection in Europe. Called Strong Customer Authentication, or SCA, it requires European consumers to confirm their identity with two out of three elements: a password, their phone or other personal item, and/or some form of biometric authentication.

SCA is part of the broader PSD2 standard, which guides data exchange between banks and fintechs. It’s designed to give consumers more choice and control over their financial information, and is expected to result in a wave of deals and collaborations to serve merchants' expanded payment processing and risk needs.

Stripe’s global ambitions, which include Europe, come up against myriad competitors. PayPal acquired iZettle, the “Square of Europe,” partly to counter Square’s incursion into Europe. Square, meanwhile, has been pushing web design technology from its Weebly acquisition in Europe.

The terms of Stripe’s Touchtech deal were not disclosed, through Stripe’s valuation, which passed $20 billion in late 2018, gives it plenty of capital to work with, and an influence over a variety of new merchant and payments technology development. Stripe did not return a request for comment.

Touchtech has developed a 3D Secure payment product that was built with PSD2 in mind, authenticating online card purchases with no passwords or one-time codes. 3D Secure is a relatively older point of sale security standard that has been upgraded to improve user experience and accommodate mobile, in-app and online payments.

SCA is expected to be just the start of security compliance needs for merchants, pressuring investments in biometrics and other forms of digital ID, as well as improvements in how digital and biometric ID technology integrates with other merchant systems.

Touchtech gives Stripe an in-house product that it can pair with its payments gateway and other merchant services it may add in the future, such as merchant credit.

In this way, Stripe is using SCA to gain value chain control versus relegating the service to a commoditized central utility, said Richard Crone, a payments consultant.

“SCA is the alpha and the omega of the payments industry and puts Stripe in control of the most impactful points of processing,” Crone said. “SCA will eventually redefine interchange rates for all payment types.”

Stripe has also made other moves to shore up its SCA technology, such as its Payments Intents API, which allows merchants to add SCA-compliant authentication to their checkout pages.

“This way, Stripe reduces complexity for merchants and helps them reduce the impact of SCA,” said Ron van Wezel, a senior analyst at Aite, adding that these new moves will “strengthen Stripe’s position considerably.”