5 Key Payment Processor Regulations + Best Practices For Compliance (2025)

If you’re here, you’re likely an ecommerce business owner sending and accepting payments across borders—possibly every day—and, hopefully, for years to come.

So, risking non-compliance with payment processor regulations? That’s the difference between running a credible storefront and shuttering shop for good. 

But here’s the thing: you can’t really be compliant with the rules if you don’t know what they are. 

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PCI DSS, KYC, AML, PSD2, GDPR—these acronyms need to be in your vocabulary YESTERDAY.

I’m going to walk you through a quick and painless checklist for due diligence. You’ll find all the yummy definitions, recommended resources, and best business practices for staying compliant.

What is a Payment Processor?

First, a quick refresh. A payment processor allows businesses to accept electronic payments, acting as an intermediary between customers and merchants. 

The service makes sure funds are transferred efficiently, and transactions are completed by securely transmitting payment information.

These processors handle credit card payments, debit card transactions, digital wallets, as well as in-person point-of-sale (POS) systems.

What is payment processing compliance?

Think of payment processing compliance as the rulebook for handling money in the digital age.

The rules help businesses prevent scams and keep your sensitive information safe from the bad guys—you know, the ones who want to steal your money. (And your customers’ data.)

For this, you need to follow industry standards that are established by some very important financial institutions and other regulatory bodies that want to make the online payment ecosystem safer for everyone involved. 

Why Understanding Payment Regulations is Super Important

The digital payment ecosystem isn’t a Wild West shootout where there are no rules, no protection, just money being fired into the ether. And that’s a good thing. 

Now, this may mean brushing up on some boring legal jargon for you, but here’s what’s at stake for your ecommerce business:

1. Build an ironclad brand reputation

Trust is the currency of ecommerce. 

Those who trust a business are more likely to buy from it. According to Harvard Business Review’s research, trusted brands outperform their competitors by 400% in terms of market value, and customers are 88% more likely to purchase again from a trusted brand.

A commitment to compliance with payment processor regulations fosters trust, builds loyalty, and reinforces confidence.

For example, take a look at Shopify’s “Security” page:

In an already hyper-competitive market, compliance gives you an edge, demonstrating your commitment to protecting customer data and handling payments responsibly.

2. Safeguard your business

Ecommerce is a ripe, ripe fruit for fraudsters. According to estimates, people will lose $343 billion to online payment fraud between 2023 and 2027. 

If you truly want to understand the scale of $343 billion, here are some worthy equivalents:

Seeing as none of us will be building space cities anytime soon, failing to comply with international data security standards can result in devastating breaches, exposing sensitive customer information and resulting in irreparable damage.

3. Protect your bottom line

Simply put, compliance is cost-effective—and an effective exercise in proactive risk management. 

The regulatory bodies who’ve set these payment processor regulations in place are like Big Brother. If you don’t comply, you leave yourself vulnerable to hefty financial penalties, regional lockouts, credit card processing restrictions, and possibly, legal action.

That said, let’s take control of your security and compliance today. The way?

Education, education, education. 

5 Key Payment Processor Regulations For Ecommerce Businesses

The World Bank’s Global Payment Systems Survey (GPSS) found that the use of online payment instruments varies between countries because of cultural, historical, economic, and most importantly—legal differences. 

And it’s these legal differences that are dictated by geography you really need to pay attention to. 

Here’s a checklist of the five key payment processor regulations that every ecommerce business should know:

1. PCI DSS compliance 

The major credit card companies: Visa, Mastercard, American Express, Discover, and JCB International, united to form the Payment Card Industry Security Standards Council (PCI SSC), and established the Payment Card Industry Data Security Standard (PCI DSS) in 2006. 

Purpose:

This global standard makes sure businesses handle sensitive payment information securely, reducing the risk of fraud and data breaches.

Who it affects:

Any business accepting, processing, storing, or transmitting credit card data—of any size. There are, however, four levels: 

Requirements: 

There are 12 essential requirements in the PCI DSS each with sub-requirements in six categories, that provide a comprehensive framework for secure payment processing.

I. SET UP AND MAINTAIN SECURE SYSTEMS AND NETWORKS

1. Install and maintain network security controls. Use firewalls to prevent unauthorized access and intrusion detection systems to detect suspicious activity.

2. Apply secure configurations to all system components. Configure your systems securely, disable unnecessary features, and remove unnecessary services and software.

II. PROTECT ACCOUNT DATA

3. Protect stored cardholder data. Secure sensitive data at rest and restrict access to authorized personnel only.

4. Use strong cryptography to protect cardholder data during transmission over public networks. SSL/TLS and strong cryptography should be used to encrypt cardholder data while transmitted over open, public networks.

III. MAINTAIN A VULNERABILITY MANAGEMENT PROGRAM

5. Protect all systems and networks from suspicious activity. Detect and prevent malware by regularly updating anti-virus software, anti-malware software, and intrusion detection/prevention systems.

6. Make sure systems and software are secure. Follow secure coding practices, perform regular security assessments, and keep software updated to patch vulnerabilities.

IV. IMPLEMENT STRONG ACCESS CONTROL MEASURES

7. Limit access to system components and cardholder data to those who need to know. Establish job role-based access controls to sensitive data.

8. Identify users and verify access to system components. Make sure each user has a unique ID and uses strong passwords, multifactor authentication, and other security measures to verify their identity.

9. Physically restrict access to cardholder data. Protect paper-based records and restrict physical access to sensitive areas where cardholder data is stored or processed.

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V. REGULARLY MONITOR AND TEST NETWORKS

10. Monitor and log all access to system components and cardholder data. Detect suspicious activity and ensure compliance by monitoring and logging network access.

11. Validate the security of systems and networks regularly. Perform regular security assessments, vulnerability scans, and penetration tests to identify and address vulnerabilities.

VI. MAINTAIN AN INFORMATION SECURITY POLICY

12. Promote information security through organizational policies and procedures. Implement an information security policy that addresses all aspects of data protection, including employee training, incident response, and data breach notification.

Penalties for non-compliance: 

According to Verizon’s 2023 Payment Security Report, nearly two-thirds of companies (64%) are not PCI-compliant. 

Don’t become a statistic, because you’ve got a lot to lose.

• Whenever you partner with a payment processor like PayPal or Stripe, your contract requires PCI compliance. This isn't a suggestion; it's a legal requirement. A non-compliance fine will vary depending on the processor, the length of the non-compliance, and the volume of your transactions.

Period of non-compliance	PCI fines against the volume of transaction
1 to 3 months	$5000/month for < volume.  $10,000/month for > volume.
4 to 6 months	$25,000/month for < volume. $50,000/month for > volume.
More than 7 months	$50,000/month for < volume. $100,000/month for > volume.

• Non-compliance with card networks (like Visa and Mastercard) and acquiring banks. These can result in penalties ranging from $5,000 to $10,000 per month, depending on your transaction volume.
• A compromised customer record alone could cost you between $50 and $90 in compensation. The real financial danger comes from potential lawsuits, which can easily escalate into million-dollar lawsuits, putting your business at risk.

Updates and changes to the PCI DSS:

The PCI DSS v3.2.1 retired on 31st March 2024. PCI DSS v4.0 includes more than 50 new requirements. 

Don't worry though. While some changes take effect immediately, for most of these new requirements, you have until 31st March 2025 to update your security protocols.

2. Payment Services Directive 2 (PSD2)

In an effort to combat online payment fraud, Europe implemented PSD2, which requires Strong Customer Authentication (SCA). 

In SCA, businesses must verify payments using multiple factors, such as passwords, mobile devices, and biometrics like fingerprints, thereby adding an extra layer of security. The 3D Secure method is widely used for SCA.

Purpose:

The goal is to improve consumer protection, boost innovation and competition in the payments market, and make payment services more secure in the European Economic Area (EEA).

Who it affects:

Those who accept online payments within the EEA—payment service providers (PSPs)—including banks, payment institutions, electronic money institutions, and businesses.

However, several exemptions in PSD2 allow certain types of payments to be processed without SCA. The exemptions are designed to balance security with convenience and efficiency. 

Some common examples include:

• Transaction Risk Analysis (TRA). Exempts low-risk transactions according to real-time risk assessment.
• Low-value transactions: Under a certain threshold, these transactions are considered low-value.
• Trusted merchant accounts: No SCA is required for recurring payments to trusted merchants.
• Subscriptions: Payments for recurring subscriptions are exempt.
• Secure corporate payments: This refers to specific corporate payment processes.

Requirements: 

There are five major requirements for compliance with PSD2.

I. STRONG CUSTOMER AUTHENTICATION (SCA)

For online payments, the use of multi-factor authentication (something you own, know, and are) is required. Among the most common SCAs is 3D Secure.

II. OPEN BANKING

The legislation requires banks to open up their data to third-party providers (TPPs) through APIs, which will foster innovation and competition in the financial sector.

III. ACCOUNT INFORMATION SERVICE PROVIDERS (AISPS)

A business may access the data from a customer's bank account to provide services like financial management or investment advice.

IV. PAYMENT INITIATION SERVICE PROVIDERS (PISPS) 

Businesses can initiate payments directly from customer accounts, making transactions faster and more efficient.

V. SURCHARGING BAN

The act prohibits companies from charging extra fees for certain payment methods, such as credit card transactions.

Penalties for non-compliance: 

You could lose a significant amount of money if you don't comply with PSD2.

• A company can get fined up to €5 million or 3% of its global revenue, whichever is higher. The penalty is determined by the severity of the violation and the particular country in the EEA. 
• A business that fails to comply with PSD2's SCA requirements may experience declined payments, resulting in frustrated customers and lower conversion rates.

Updates and changes to the PSD2:

As part of its efforts to modernize and update the existing framework, the European Commission has proposed PSD3 as well as a Payment Services Regulation (PSR).

3. Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations

Imagine a world in which anyone could open a bank account, transfer large sums of money, or make online purchases without proving their identity. 

A haven for cybercriminals. But hell for business owners. This is where KYC—also known as Customer Due Diligence (CDD)—and AML come into play. 

Purpose:

In order to comply with anti-money laundering regulations, KYC is an essential process for businesses to verify their customers' identities. 

Both the company and its customers are protected from harm through these measures, which help prevent financial crimes such as money laundering, terrorist financing, and fraud.

Who it affects:

The need for KYC/CDD is triggered by certain customer actions. 

A red flag for money laundering or terrorist financing may include opening an account, making financial transactions above a set threshold, or exhibiting behavior that raises suspicion.

Under AML/CFT regulations, regulated entities are required to comply with AML/CFT regulations, including KYC. Depending on the jurisdiction, regulated entities have varying scopes. 

Typically, this includes:

• Financial institutions
• Credit institutions
• Insurance companies
• E-money institutions
• Payment institutions
• Virtual Assets Service Providers (VASPs)
• Gambling service providers
• Art dealers, etc.

Requirements: 

For the prevention of financial crimes including money laundering and terrorism financing, KYC/CDD (Know Your Customer/Customer Due Diligence) is a critical component. Broadly, the 12 requirements for compliance fall into three major categories.

I. CUSTOMER IDENTIFICATION AND VERIFICATION

1. Customer due diligence. Make sure new customers are identified and verified using reliable sources.

2. Document verification. Check the legitimacy of provided identification documents (e.g., passports, driver's licenses, etc.)

3. Ultimate beneficial owners. Determine which individuals own or control a business account.

II. RISK ASSESSMENT AND MONITORING

4. Transaction monitoring. Check customer transactions for deviations from expected behavior or patterns.

5. Business information. Get to know your business customers' nature, purpose, and expected activity.

6. Personal and business relationships. Assess potential risks by analyzing the customer's relationships with other individuals and businesses.

7. Annual sales. Get an estimate of the customer's annual sales.

8. AML policies and procedures. Make sure customer policies and procedures comply with regulations.

9. Local market reputation. Check the customer's reputation in the local market by consulting media sources and other publicly available resources.

III. DATA SECURITY AND RECORD-KEEPING

10. Data security. Make sure that sensitive customer data is protected from unauthorized access, use, or disclosure.

11. KYC Documents. Make sure all KYC documents collected are securely stored and are easily accessible for compliance audits.

12. Third-party documentation. Obtain and maintain copies of any third-party documentation used to verify customer information.

Penalties for non-compliance: 

Reserve Bank of India (RBI) levied a significant fine on two companies for non-compliance last month:

• On September 3, 2024, Hewlett Packard Financial Services was penalized $13,500 for KYC violations.
• And within a week, Muthoot Vehicle & Asset Finance faced a $10,200 penalty for failing to meet liquidity risk management and customer data reporting requirements. 

Don’t become a headline. The money may be a drop in the ocean for these large enterprises, but the brand damage can cost you your market reputation. 

Updates and changes to KYC and AML:

KYC and AML compliance are getting a technological boost. One of the biggest recent changes includes automatic sanctions screening of customers against updated sanctions lists in real time.Plus, with the rise of eKYC, automated tools can verify identities instantly—all online.

4. GDPR and data protection

The GDPR protects the right to privacy as a fundamental right. This is widely considered the world’s strongest privacy and security law.

Purpose:

The EU law sets strict standards for how businesses handle personal data, giving individuals greater control over their information and ensuring that it’s processed efficiently and securely.

Who it affects:

If your business deals with the personal data of European Union residents, GDPR applies to you. In fact, you're liable whether you live in the EU or not, even if you simply monitor the behavior of EU citizens online.

Requirements: 

GDPR is a comprehensive EU law that safeguards personal data and privacy. Here are 10 key requirements:

I. PRINCIPLES OF DATA PROCESSING

1. Lawfulness, fairness, and transparency. Use data lawfully with a clear purpose, and be transparent about how it’s used.

2. Purpose limitation. Only collect data for specific, explicit, and legitimate purposes.

3. Data minimization. Only collect data that is necessary for the intended purpose.

4. Accuracy. Keep data up-to-date and accurate.

5. Storage limitation. For the purposes specified, only keep data for a reasonable period.

6. Integrity and confidentiality. Make sure data integrity and confidentiality are protected with appropriate security measures.

II. ACCOUNTABILITY AND GOVERNANCE

7. Data Protection Impact Assessment (DPIA). Evaluate the risks associated with high-risk processing activities and mitigate them.

8. Privacy by design. New systems and processes should be designed with data protection principles in mind.

III. INDIVIDUAL RIGHTS AND RESPONSIBILITIES

9. Data subject rights. The processing of individuals' personal data should respect their rights of access, rectification, deletion, and restriction.

10. Data breach reporting: Document personal data breaches with the supervisory authority and, in some cases, with the individuals affected.

Penalties for non-compliance: 

There are tiers of fines based on the severity of infringement.

• Less severe violations. A maximum of €10 million or 2% of the company's global turnover for the previous year, whichever is greater.
• Severe violations. Up to €20 million, or 4% of the company's global turnover for the prior year, whichever is greater. 

Updates and changes to GDPR:

People now have new rights under GDPR, including the “right to be forgotten,” which gives them the opportunity to request that their personal data be deleted; and the “right of portability,” which allows them to transfer their data to another service provider.

5. IRC Section 6050W

According to Internal Revenue Code Section 6050W, certain payees and merchants must report payment information to the IRS. 

In this case, the reporting is done on the Form 1099-K, which is known as the “Payment Card and Third Party Network Transaction Report.”

Purpose:

The purpose of section 6050W is to ensure that every business has an equal playing field and that everyone pays their fair share of taxes. 

In addition to providing the IRS with valuable data, this reporting requirement contributes to a more equitable tax system by ensuring income is verified and preventing tax evasion.

Who it affects:

In general, this section affects two types of entities:

1. Merchant acquiring entities. A bank or financial institution that performs transactions on behalf of a merchant. As intermediaries, they connect the merchant with the card issuer (the customer's bank).  
2. Third-party settlement organizations. These are companies that facilitate payments through third-party payment networks. PayPal, Venmo, Square, and Stripe are just a few examples.  

Requirements: 

A third-party settlement organization is generally not required to report transactions for a payee if the total amount is less than $600.

As such, here are the key requirements:

I. INFORMATION RETURNS

1. Form 1099-K. For each calendar year, payment settlement entities must file Form 1099-K.

II. REPORTABLE TRANSACTIONS

2. Payment card transactions. Card-based transactions include credit, debit, and prepaid card transactions.

3. Third-party network transactions. These include transactions conducted through third-party payment processors like PayPal, Venmo, and Square.

III. INFORMATION TO REPORT

4. Gross amount. For each payee, the gross amount of all reportable payment transactions.

5. Payee information. Every payee's name, address, and taxpayer identification number (TIN).

Penalties for non-compliance: 

As a result of compliance failures, you may be exposed to withholding tax liabilities (generally 28% of payment), interest, and penalties.

Updates and changes to IRS section 6050W:

For 2024, according to EY, the threshold may increase to $5,000, giving Congress time to potentially adjust it. 

In the meantime, payment processors must diligently collect taxpayer identification numbers (TINs) from all payees to maintain smooth reporting.

3 Strategies For Keeping Your Ecommerce Brand Compliant

If payment compliance feels like a never-ending game of regulatory whack-a-mole, you're not alone. Just when you think you've mastered PCI DSS…BAM! GDPR pops up with a surprise left hook.

But fear not. There are several ways to navigate compliance without losing your mind (or your profits). 

I talked to a few ecommerce, finance, and legal experts on how they manage their compliance acronym fatigue and avoid hits to their bottom line.

1. Stay updated

Duh, right? But knowing the right resources is important. 

Subscribe to industry updates. Keep up with the latest payment regulations by subscribing to newsletters, blogs, and alerts from regulatory bodies, legal experts, and industry associations.

Publications like The Financial Times and MoneyWeek “provide critical information about economic trends and financial markets,” says Gary Hemming, owner and finance director at ABC Finance. 

How does this help?

For example, after learning about an expected interest rate change, we adjusted our lending strategies, giving us a competitive advantage and protecting our profits.

In addition to popular publications, Balázs Keszthelyi, founder and CEO of TechnoLynx relies “heavily on official guidelines from regulatory bodies such as the Financial Conduct Authority (FCA) and the Payment Services Regulations (PSRs).”

2. Establish a strong internal compliance program

Maintain an updated compliance program that is aligned with current regulations by reviewing and updating it regularly.

Stephen Boatman, principal at Flat Fee Financial, takes a novel, four-pronged approach to staying compliant:

1. “We proactively conduct quarterly “regulatory gap analyses.” To catch discrepancies between current payment processor rules and our operational setup before they become an issue. Many businesses only conduct annual audits, but quarterly inspections allow us to anticipate and mitigate compliance concerns, particularly when payment processors change their encryption or fraud protection requirements.”
2. “We also build “audit trails” into every transaction. This isn’t just for IRS records—it ensures we can immediately address processor inquiries with a transparent, timestamped log. Many businesses overlook this, and it has saved us numerous hours during compliance audits.”
3. “Another advanced tactic is “tokenization layering.” Sensitive customer payment data is stored as encrypted tokens across multiple cloud services. Even if one layer is hacked, the others stay secure. This goes beyond basic PCI-DSS standards.”
4. “Lastly, we embed “AI-driven anomaly detection” software. This flags any unusual payment behavior in real time, alerting Flat Fee to potential compliance violations or fraudulent activity before they become reportable incidents.”

3. Automate compliance processes with software

Select payment processors and payment gateways that offer built-in security features, automated reporting, and compliance management tools to streamline your efforts.

You can automate KYC/CDD checks, data security management, and transaction monitoring using compliance software.

Looking for a safer, more efficient way to process payments? Check out our list of the top 10 payment processing software solutions:

1. 1. Payline Data — Best for centralized transaction management
2. 2. Airwallex — Best for simplifying cross-border payments
3. 3. CardX by Stax — Best for zero-cost credit card processing
4. 4. Shopify POS — Best for omnichannel retail integration
5. 5. Swipesum — Best for accessing multiple payment processors
6. 6. QuickBooks Online — Best payment processing, invoicing, and expense management
7. 7. Helcim — Best payment processing software for recurring billing
8. 8. Clover — Best for POS system integrations
9. 9. Merchant One — Best customizable payment solutions tailored to specific business needs
10. 10. Chargebee — Best subscription solution for high-growth ecommerce companies

Don’t let old, outdated software leave you at a higher risk for penalties. Here are our top 10 picks of the best payment gateway processing services on the market:

1. 1. Payline Data — Best for no long-term contracts
2. 2. Shopify POS — Best for omnichannel retail integration
3. 3. CardX by Stax — Best for 0% cost credit card processing
4. 4. Swipesum — Best for access to top payment gateways
5. 5. QuickBooks Online — Best payment gateway provider for invoicing
6. 6. Helcim — Best for cost-effective payment processing
7. 7. Clover — Best for POS integration services
8. 8. Merchant One — Best customizable payment solutions tailored to specific business needs
9. 9. Square — Best payment gateway provider for small businesses
10. 10. Stripe — Best payment gateway provider for handling recurring transactions

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Stay Compliant, Stay (Financially) Healthy

Can’t remember everything we talked about? I don’t blame you. 

There are three key takeaways here:

• Stay up-to-date with the latest regulations, including PCI DSS, GDPR, AML, PSD2, and IRS Section 6050W, to protect your business and your customers.
• Reduce human error with compliance software and technology.
• For complex regulations or expansion into new markets, consult compliance specialists.

Stay informed, stay compliant—stay ahead of the curve. Subscribe to our newsletter with the latest insights for ecommerce managers from leading experts in the industry.