As digital payments evolve and online transactions surge, regulatory measures across Europe are tightening to ensure both security and customer protection. One such regulation that businesses must be prepared for is Strong Customer Authentication (SCA), a fundamental requirement under the Revised Payment Services Directive (PSD2). Designed to combat fraud and bolster consumer confidence, SCA calls for a significant shift in how businesses approach online payments.
In this article, we will explore the key principles behind SCA and explain why compliance is essential. We’ll also outline actionable steps to help companies integrate SCA into their payment systems without disrupting the customer experience.
The rise of SCA: why it matters
With the rise of e-commerce, digital wallets and online banking, payment fraud has become a growing threat. In an effort to combat this, the European Commission introduced Strong Customer Authentication (SCA) as a fundamental requirement under the Revised Payment Services Directive (PSD2). All businesses operating in the EU have been legally required to comply with SCA since 31 December 2020. Businesses that fail to meet SCA standards may face penalties, rejected transactions and a loss of consumer trust.
The benefits of this mandatory requirement are twofold. By implementing SCA, businesses significantly reduce the likelihood of unauthorized transactions and also help safeguard customer data. For consumers, SCA provides peace of mind by ensuring that only legitimate parties can authorize transactions.
Understanding the core of SCA
At its heart, Strong Customer Authentication is built on the concept of multi-factor authentication. For any payment that falls under PSD2’s scope, customers must be verified using two out of three independent factors from the following categories:
- Knowledge: Something the customer knows, such as a password or PIN.
- Possession: Something the customer has, like a phone, smart card or token.
- Inherence: Something the customer is, such as a fingerprint, facial features or other biometric data.
Leveraging this combination of factors drastically reduces the risk of fraud, which is why multi-factor authentication is part of PSD2 compliance.
5 steps to navigate SCA challenges
While the security benefits of SCA are clear, implementing it can present challenges – especially when it comes to balancing compliance with customer experience. Every added layer of authentication increases friction during the payment process, potentially leading to customer frustration and higher cart abandonment rates.
So how can businesses implement SCA effectively while maintaining a smooth customer journey? These are the five key steps:
1. Map out your payment journey
Before jumping into technical implementation, it’s important to first map out your payment process. You need to understand which transactions fall under SCA’s requirements, because not all transactions are subject to SCA. The exemptions include:
- Recurring payments: SCA is not required for fixed-amount subscriptions after the initial payment.
- Low-value transactions: Payments under €30 may be exempt from SCA.
- Trusted beneficiaries: Transactions to merchants marked as trusted by the customer may not require SCA.
Understanding which payments need SCA and which don’t is crucial to balancing security with customer convenience.
2. Choose the right authentication tools
Since SCA gives businesses the flexibility to choose from a variety of authentication tools, it is useful to bear in mind that not all tools are equally desirable. Integrating more modern and seamless authentication methods into your payment system can reduce friction and improve the overall customer experience.
For example, biometrics (like fingerprint and face recognition) and push notifications are both secure and user-friendly, which is why they are gaining popularity over more traditional tools such as passwords and SMS-based codes.
3. Implement risk-based authentication
Another effective way to reduce friction in the payment process is by employing Risk-Based Authentication (RBA). This involves real-time assessment of the risk level of each transaction based on factors like the user’s location, device and transaction history. Low-risk transactions may proceed with minimal authentication, while high-risk transactions trigger additional checks.
The RBA approach not only improves security but also minimizes disruption to customers, ensuring a more frictionless payment process for trusted and low-risk users.
4. Test and monitor your SCA implementation
After implementing SCA, continuous testing and monitoring are essential to ensure that your authentication system works across various platforms, devices and browsers. Issues in any of these areas can negatively impact the customer experience, so it is important to identify and iron out any potential problems.
Additionally, following SCA implementation, keep an eye on transaction success rates and any increase in cart abandonment. If abandonment rates rise, work on streamlining the process or increase your efforts to educate customers about the new steps in payment authorization (see Step 5).
5. Educate your customers
Strong Customer Authentication introduces a new experience for many users, so it’s essential to keep them informed about the changes. Clear communication helps customers understand why additional steps are necessary, and is an opportunity to reassure them that their data and money are being protected.
Consider using on-screen guides or sending out emails that explain how the process works and how it benefits users. A well-informed customer is far more likely to embrace the changes and continue to trust your brand.
The benefits of effective SCA implementation
While it is mandatory to comply with PSD2, implementing SCA effectively can lead to several positive outcomes for businesses:
- Higher security, lower fraud risk: By adopting robust authentication measures, businesses reduce fraud risks and build a more secure environment for transactions.
- Increased consumer trust: Customers are more likely to feel confident in your business if they know their transactions are protected by the latest security measures.
- Enhanced user experience: Although SCA introduces an extra authentication step, choosing the most suitable tools (such as using biometrics or push notifications) can minimize disruption and create a smoother overall experience.
Maxcode: your partner in SCA implementation
Implementing SCA successfully requires a strategic approach – one that takes into account security, compliance and customer satisfaction. At Maxcode, we specialize in helping businesses adapt to EU regulations like PSD2 while ensuring their payment systems remain secure and user-friendly.
From navigating complex exemptions to seamlessly integrating authentication methods, our team is here to guide you through every step of your SCA journey. Get in touch with Maxcode today to discuss how we can help your business stay compliant while optimizing the customer experience.
