The prolific rise of eCommerce has transformed the payments industry. With consumers relying heavily on contactless payments, digital solutions and alternative payment methods, more and more data is flowing towards merchants from a growing pool of touch points every day.
While on one hand this increase in data helps eCommerce businesses to create bespoke services and deals for each customer, it also amplifies the risk of security breaches, as well as fraud. Consumers are increasingly aware of this issue and will move away from any merchant that they do not feel is trustworthy. This is an ever-increasing issue which Strong Customer Authentication (SCA) – part of PSD2 – aimed to address with its implementation in the UK in March 2022.
CMSPI estimates that €25bn in revenue was lost in Europe in 2021 as a result of the SCA enforcement. In a year set to be defined by tight margins and consumers drawing back the purse strings, merchants need to juggle SCA compliance with the maintenance of a smooth and frictionless customer journey, whilst ensuring conversions are unaffected.
This is naturally a hard balance to strike, and merchants are concerned about the impact this will have on their conversions and revenue. In this article we will share insights on how to make SCA work in favour of merchants.
What is SCA, and why was it implemented?
Under SCA, customers in the EEA are required to verify their identity with two factor authentication for the majority of online transactions. Card issuers automatically decline non-compliant transactions under the requirement unless exempt, which applies to the European Economic Area (EEA) and the United Kingdom.
The authentication required under SCA includes a combination of two factors. These can either be something the consumer knows, such as a passcode, something the consumer has, such as a mobile banking app, or something the user is, which involves biometrics. These three must be independent from one another; one factor must not compromise the reliability of the others, and all are designed in such a way as to protect the confidentiality of the authentication data.
Simply put, the goal of SCA is to protect consumers from fraudulent transactions, which saw more than £750m lost due to fraud in the first half of 2021 alone. While the regulation aims to support the consumer, the two-factor authentication adds an element of friction and could impact online merchants’ conversions. However, there are some benefits for merchants too, including reduced processing of fraudulent transactions and increased cardholder confidence when using online services.
The payment challenges faced by merchants
Research from emerchantpay found that over one in three payment leaders admitted that changing regulation and ensuring compliance – including with PSD2 and SCA – is a top concern towards optimising payments performance in 2022.
Non-compliance, as well as inefficient payment infrastructures, could be causing merchants to lose revenue. Over nine in ten organisations admit to be losing revenue as a result of shortcomings in their payments system, while one in four want to make improvements to their payment system by mid-2022.
Streamlining SCA compliance with the right payment partner
It is clear that merchants need the support of trusted payments providers (PSP). In fact, 79% of payment leaders stated that proactive support from their PSP ahead of upcoming regulatory changes is important to them. Further, more than one third of online retailers acknowledged this as extremely important, highlighting the need to partner with a trusted PSP that can deliver this strategic value to merchants.
An experienced PSP with expertise in PSD2/SCA, can provide timely assistance to merchants, in advance of upcoming changes, developments and improvements. This ensures smooth transition to the new requirements, while providing the optimal payment experience.
To illustrate, with the right PSP, online retailers can design payment experiences that are SCA compliant while sustaining conversion rates. A trusted PSP should work closely with merchants to tailor their payment strategy so it is PSD2 compliant, meeting their customers’ expectations, and leveraging SCA exemptions when appropriate and suitable. Additionally, it is crucial for PSPs to understand different audience demographics across geographies, as SCA challenges differ from country to country; this could be achieved, for instance, with SCA authentication on a per country basis. A well-developed PSP, with an extended network, could provide the most optimal processing channels in regards to the PSD2 requirements. Strategic partnerships such as these will return improved conversion and acceptance rates, as well as reduced fraudulent transactions for the merchants.
Despite these possibilities, emerchantpay research found that 20% of organisations across industries are dissatisfied with their PSP. Further, more than half (56%) of respondents stated that they are likely to change providers; this fact alone proves how critical it is for PSPs to strategically support merchants in an ever-changing eCommerce landscape.
The need to act now
The complexity of SCA cannot be understated, and it will take some time for the payments and merchant ecosystem to adapt to it. Trying to navigate this shifting landscape without the support of a strategic payments partner is likely to result in significant losses; partnering with the right PSP that can act as a strategic advisor for payments and relevant regulatory updates enables businesses to safeguard their conversions and focus on what matters most – growth.
For those retailers and eCommerce merchants who are already well on the way to making the necessary adaptations, 2022 will give them a great opportunity to race ahead of the competition – but for those who haven’t started yet, it may be much more of a scramble to keep their head above water.