We already discussed the definition of Strong Customer Authentication (SCA) when it was a brand new requirement introduced by the PSD2 regulation on payment service providers (The EU and EEA revised Payment Services Directive), established to make all electronic payments more secure through a multi-factor authentication. Since then many things changed, especially in the UK.
Not being a part of the EU anymore, slightly different rules apply to the enforcement of SCA compliance in the UK. For example, the requirement for SCA for Ecommerce in the countries of the European Economic Area needed to be enforced by January 1st, 2021, while in the UK the deadline is different, even though, Strong Customer Authentication is already enforced for many other electronic transactions in the UK and the rest of the world.
Initially, strong customer authentication in the UK was supposed to be done by March 2021, but the deadline was extended by the Financial Conduct Authority due to the COVID emergency and Brexit. By September 15th, 2021, payment service providers, Ecommerce merchants, payment gateways need to be ready for SCA compliance.¹
The first doubt with the credit card SCA that comes to mind is that of how it will impact frictionless payment. Is frictionless transaction under a threat with now an obligatory SCA and an extra step introduced at the checkout?
Many merchants, especially those that operate on international level where SCA is obligatory, are afraid that with SCA compliance friction will be an issue at the checkout with additional security measures in place, which will result in a significant drop in conversions. Even though, multi-factor doesn’t necessary mean lower transactions, since not registered users that usually cause a high drop-off, are the ones that don’t purchase in the end, no matter if the transaction is frictionless or not.
Still, safety and security might cost businesses a higher cart abandonment rate for Ecommerce, travel and digital goods. What can be done to prevent it? This is when smart use of different payment methods and maximising SCA exemption come into play in order to safeguard conversion rate and businesses’ growth.
Payment methods play a crucial role. Electronic instant payments and bank transfers are the payment methods that require SCA compliance. Direct debits, for instance, that are done without customer’s bank involvement in the moment of transaction taking place, due to bank’s prior approval, are not subject to SCA, since this payment method is considered more fraud-resistant than a credit/debit card payment, which has to be SCA compliant.
Since 2018 when we talked about it last, SCA exemptions and conditions expanded and became more specific. Besides inter-regional transactions, in which the issuer or acquirer reside outside Europe, these transactions now are in the gray area, even though, there are plans to enforce payment SCA worldwide, and even when both parties reside outside the EEA, it is still strongly suggested to comply with the SCA but is not required yet.
For now, there are 10 categories that qualify for PSD2 SCA exemption of transactions in EEA and the UK starting this September:
What is important to highlight regarding SCA exemptions is that the banks are not obliged to support them, so they have an authority to apply SCA, even if the transaction qualifies for exemption or the merchant’s PSP supports it, the banks can still enforce it if they wish.
A very common question that comes up often, where safe transaction and SCA are concerned, is about the security protocols of payment circuits like Visa, Mastercard and others, therefore we pose and answer the following question.
Yes, it is, to put it simply. However, for now in the EEA area only, in order to comply with the European SCA regulation. Merchants outside of Europe, however, are strongly encouraged to implement the latest version of the protocol 3DS2 (3D Secure 2.X) in the near future to help with fraud prevention and customer experience. In theory, the 3DS2 is not actually obligatory because of PSD2 regulation, but was identified by the payment industry as a tool to enable the compliance with the regulations for two main reasons:
Issuers will have to manage exemptions with the right tools implementation to be able to categorise those transactions that can be carried out with SCA. So, the way merchants set up 3D Secure 2.0 depends on their payment service provider. Same goes for charges for 3DS2, they depend on the PSP, as well as the implementation charges and extra costs depend on the provider you are with.
Each issuing PSP has to select the factors to use in authentication and to combine them in different ways to ensure further users’ protection. Another obligation payment service providers have, which is required by SCA, is that of communication with the merchants, the whole process of implementation of SCA and the approach that the PSP wants to adopt is to be communicated to the merchant.
The UK is the leader in Europe on percentage of transaction authenticated with 3DS2². 92% of the transactions were authenticated in May 2021 (+5% from January 2021), while Germany is at 73%, Italy at 67% and only 59% in Belgium.
The problem, of course, is not a shopping card abandonment per se. Simply put, the problem for the merchants is the effects of shopping cart abandonment on businesses, such as lower conversions for the merchants and, as a result, lower revenue. In essence, every abandoned cart is a purchase that could have happened but didn’t, and the customer journey wasn’t completed. The problem for retailers is that this rate is huge all around the world. According to SaleCycle’s report³ that analyzed 500 global brands, Europe is the region with the lowest shopping cart abandonment rate and even then, it is at 81.5%, while the highest rate is in Middle East and Africa at almost 91%. As a merchant, you should keep an eye on the increase of the shopping cart abandonment rate in your business, conduct analysis and research the average rate in the industry and the region you are in, for the abandoned carts not to become a problem that would have a high impact on your margins. What also is very important is to get in contact with your payment partner, make sure the solution you are using for your Ecommerce is the optimal one and consider integrating a Payment Orchestration platform that results useful in reducing shopping cart abandonment rate.
To learn how to deal with the shopping cart abandonment and its reasons, in order to give your customers frictionless payment experience, SCA compliant or not, read our next article on abandoned carts – Shopping cart abandonment: reasons and solutions.
In this article we will dive in the top reasons for cart abandonment and marketing solutions on how to get back the customers who dropped off at the checkout stage.14 October 2021 • 8 minutes
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