By Alessio Rodia, Product Team Lead
Those in the payments industry will be all too familiar with Strong Customer Authentication (SCA) and its ongoing challenges. For others that aren’t, a brief history lesson is in order. Back in 2013, the European Central Bank (ECB) recommended e-commerce should introduce SCA in order to improve security and reduce the risk of fraud. What followed was many years of payment security innovation that culminated in the European Commission the updated Payment Service Directive (PSD2) that would turn SCA from a recommendation, into a regulatory requirement. Unfortunately, the implementation of SCA so far has not exactly gone to plan.
SCA went live at the end of 2020 for all European countries, except for the UK. This came into play following a 15-month extension from its original proposed implementation date (14 September 2019), set out by the European Banking Authority (EBA) after concerns were raised in several European countries that more time would be required to introduce SCA in a way that would not disrupt services. These concerns were echoed by research from payments consultancy CMPSI, which forecasted potential losses of 1 billion euros for European retailers in 2021 as a direct result of the regulation. Yet despite the concerns raised, SCA still became mandatory.
That brings us to the present day. In the UK, a unique extension had been given, moving the implementation date from 31 December 2020 to 14 September 2021, but in May 2021, the UK’s Financial Conduct Authority (FCA) announced that it would be adding an additional 6 months to this extension, making the new deadline 14 March 2022. The reason? The FCA found that many European retailers had seen a significant loss in sales over the few months that SCA had been active.
The FCA revealed that ecommerce merchants across many European countries have experienced significant reduction in conversion rates. In France and Spain this has averaged at around a 25% reduction, while Germany saw a 30% reduction. The worst country to be hit, however, was Italy, where up to 40% of transactions have already been lost. Collectively, this has cost merchants millions of Euros per month already –precisely what the FCA wants to avoid in the UK.
While SCA had the noble cause of reducing fraud cases, and it still does that, a side effect is that it has greatly cut down on revenue for those merchants forced to implement it, just as feared. This is a major blow for merchants, and the problem ultimately comes down to a lack of education for the end customer.
So how can we as an industry solve this conundrum? After all, the technology to seamlessly integrate SCA into the existing payments process (via 3DSecure 2.0) is proven. We drafted a full FAQ explaining how and why the technology is effective, for anyone who wants to read more about this. But consumers are still feeling the frustration from the added security steps, and this is because they do not fully understand the reasons behind them, and this is causing friction at the point-of-sale.
While it was always expected that there would be some friction at check-out, it was believed that if the customer was aware of why these steps were in place, then it would be acceptable. Research released last year highlights the value of security to customers, revealing that 69% of consumers placed security as a top priority when making payments online. Clearly there is an appetite for payments security, and to satiate that it is up to merchants and payments industry bodies to inform customers of the benefits of SCA.
The extension for the UK will give merchants more time to prepare customers for the eventual change, which is only a good thing. SCA has the potential to bring major positives to the payments process, but more time is required in order to make the experience as seamless as possible for the end-user. Furthermore, a combination of information and education will be vital to ensure consumers don’t drop out of the conversion process at point-of-sale.
If you want to learn more about SCA and how to educate your customers on its importance then we have an entire section on our website dedicated to the regulation, in addition to a webinar hosted by a SCA expert. And if you still have questions then don’t hesitate to reach out to us via our contact form.