What is SCA (Strong Customer Authentication)?

Ever wondered what SCA is? In the banking and finance sector, it is a regulatory requirement that stipulates additional authentication steps that must be taken for customers making electronic payments. These extra security measures ensure that only authorized users can access their funds and that they are protected against fraudulent behavior.

With SCA, two or more independent authentication factors must be used to verify the customer’s identity. This could include entering a Personal Identification Number (PIN) to respond to questions asked by the bank’s fraud prevention team. Multiple verification methods make it much harder for criminals to hack into accounts or make unauthorized transactions.

While initially introduced as part of the EU Second Payment Services Directive (PSD2), SCA will be extended to other parts of the world, including the Asia-Pacific region and North America. Banks and payment processors have been working hard over recent years to update their systems to comply with these new regulations. However, businesses have been concerned about how onerous SCA may prove in practice. There is also a worry that increased security requirements could increase online payment rejection rates – particularly amongst certain demographics such as millennials.

How will it impact the banking and financial sector?

The introduction of the Second Payment Services Directive (PSD2) in Europe, and its associated Strong Customer Authentication (SCA) requirement, is causing many worries among businesses. This is understandable – SCA will require banks and payment processors to upgrade their systems so that they can properly authenticate customers before authorizing payments.

There are concerns that this could increase online payment rejection rates, particularly amongst certain demographics such as millennials. Banks and payment processors have been working hard over recent years to update their systems, so they are compliant with these new regulations, but there has been some concern about how onerous SCA may prove in practice.

However, it's important to remember that PSD2 is not just about authentication; it also includes several other provisions which should make life easier for businesses operating in the European Union. These include uniform rules for card-based payments across all member states and more transparency around interchange fees charged by credit card companies. In addition, PSD2 encourages the development of innovative financial technologies such as mobile wallets and peer-to-peer payment platforms, so there may be some teething problems associated with SCA.

What are the benefits of using SCA?

Since the Second Payment Services Directive (PSD2) launched in January 2018, there has been a great deal of discussion about the benefits of Strong Customer Authentication (SCA). This is because PSD2 requires all online payments to be made using two-factor authentication, which can often involve cumbersome procedures such as entering a one-time password or scanning a QR code.

Despite this added layer of security, many businesses fear that SCA will adversely affect their bottom line. There are concerns that customers may abandon websites that require too much extra hassle or that they won't bother to make small purchases if they have to go through multiple steps.

Advantages of SCA Implementation

There are several long-term advantages associated with SCA implementation:

  1. Reduced customer abandonment: When customers face hurdles such as extra steps or authentication processes, they're more likely to abandon their purchase. SCA will help reduce this kind of shopping cart abandonment, leading to increased business sales and revenue.
  2. Increased trust and security: By requiring additional authentication for online transactions, SCA helps ensure that customers feel safe doing business online. This can lead to greater trust in e-commerce providers and overall spending.
  3. Better user experience: Many consumers find it frustrating to go through multiple hoops to make a small purchase. With SCA in place, businesses can streamline the checkout process, making it easier (and faster) for shoppers to complete their transactions.
  4. Fewer fraudulent transactions: SCA will help reduce the number of fraudulent transactions online. Businesses can more easily identify illegitimate purchases and block them.