This article suggests that merchants take advantage of every opportunity to avoid implementing two-factor authentication of customers. While clearly there are times when asking the customer to authenticate themselves is less needed, does that mean it should be jettisoned? The only reason two-factor authentication is avoided is because in most implementations it generates friction. But SCA allows a properly secured device to be used as one factor and a behavioral biometric as a second factor. So a consumer with a smartphone in their possession when placing an order could be authenticated without any friction. However, this isn’t supported by any banks that I am aware of so the only way it could happen is if the merchant takes on delegated authorization and does it for the bank. But then I am also unaware of any delegated authorization implementation.
What we are left with is finger pointing both in the EU and the US. Merchants hate the card networks and want to make minimal investment to support them. Banks act as if this is a network and merchant issue, not theirs, even though authenticating their accountholders is critical. So here we are stuck in the middle despite the availability of great authentication solutions from suppliers:
“Of course, there is nothing stopping fraudsters from attacking transactions protected by 3D Secure alone — and they do. The security protocol does shift liability from the merchant to its bank, but if a bank is hit by fraud often enough, it will protect itself by declining more orders.
That’s SCA in simple terms but the wonder of the regulation lies in the detail. And on closer inspection of what SCA stipulates, it is clear that a robust fraud protection solution will be the bedrock of a merchant’s successful SCA strategy because:
1. Low fraud rates are required for key exemptions that allow consumers and merchants to bypass SCA.
2. SCA does not cover every transaction a merchant will process — far from it.
3. SCA deals head-on with payment fraud. It does not protect a merchant from friendly fraud or policy abuse by consumers.
4. Fraudsters are innovative and entrepreneurial. SCA may prove a barrier initially, but professional fraud rings will find an alternate path of attack.
Let’s start with exemptions, as they are the key to providing a seamless SCA experience for online customers. Exemptions allow orders to be approved without undergoing SCA based on the notion that the transaction isn’t very risky or wouldn’t be very costly if things go wrong.
Skipping SCA is a highly desirable outcome as stricter authentication measures have the potential to disrupt the customer’s online checkout experience. Featured in the latest CMSPI report into the impact of SCA in Europe, testing shows 29% percent of SCA transactions are abandoned. This could be because they are declined, because of technical errors or because the customers simply got too frustrated with the added security layers. All of this could amount to an annual loss for merchants of €90 billion combined.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group