Strong Customer Authentication under PSD2: Consumer Education Will Be Crucial to Success
The European Banking Authority (EBA) has finally provided the promised update on SCA supervisory flexibility timelines – with a new hard deadline for migration completion of December 31, 2020. According to the new guidelines, migration plans of PSPs – including the implementation and testing by merchants – should be completed by that date, otherwise all players could face serious penalties for non-compliance.
The new deadline is shorter than the transition periods previously provided by many designated national competent authorities (i.e. FCA in the UK, BaFIN in Germany), following guidance from EBA published in late June. That guidance allowed for a delay in the implementation of Strong Customer Authentication (SCA) over concerns that banks, PSPs and merchants were unprepared for the change, and an outcry from eCommerce merchants over a potential drop-off in customers.
Consumer education will be crucial for the success of SCA
We are seeing big differences in terms of the industry’s preparedness for SCA. Many large retailers such as John Lewis in the UK have already been rolling out SCA measures, whereas many of the smaller retailers still seem to be at the early planning stages.
For the roll-out of SCA to be a success, we still need to see coordinated industry action, especially when it comes to the education of consumers. We did a great job as a country when chip and pin was introduced, with a concerted effort led by the government to prepare consumers for its introduction. We must see a similar education campaign regarding SCA.
Are companies going to notice a drop-off in customers after SCA?
Customer drop-off will certainly be an issue for many eCommerce retailers. According to recent research by Go Cardless, 43 percent of UK consumers believe that ‘speed and ease of payment’ is the most important factor when paying for something online. And nearly half (45 percent) of UK shoppers said they would be frustrated with a favorite brand that introduced new security processes during online checkout. A separate study by Stripe predicts that European businesses could lose as much as €57 billion in economic activity in the year after SCA debuts.
However, I believe that a friction-free shopping experience is still possible, but perhaps not in the way we have known it to date. Because if everyone is aware of the new rules, and prepared for the next ‘authentication’ request, then why would we view these new steps as ‘friction’? If we educate consumers about the new measures and related benefits now, then it will become natural very quickly.
Who should be responsible for educating consumers – banks, retailers, regulators, or a combination?
If we want to ensure that SCA achieves its aim of reducing fraud without negatively impacting consumers’ shopping experience, then all parties need to work together in order to educate and prepare consumers. For banks and eCommerce retailers, this involves telling their customers that to maintain the level of convenience they want, they’ll need to be prepared for requests for additional authentication. They should also make it clear that these additional measures are designed to keep fraudsters at bay – being put in place for the benefit of the consumer.
Regulators should work together with governments to launch a public education campaign on the new laws. Education will be key to the success of SCA; it will help to limit the confusion consumers might feel about the new measures, which in turn could lead them to either be exploited by fraudsters, or put people off conducting eCommerce transactions.
How can firms minimize a decline in payments following SCA?
Whilst consumer education is key, it is also important that firms are ready for SCA from a technical perspective. This means making sure that they have the capabilities to enable their customers to authenticate themselves via two of the three required routes. For example, some organizations currently don’t have biometrics technology. So, if they choose ‘something you are’ as one of their authentication factors, they need to find the right solution to enable customers to do this.
Closely monitoring their fraud levels, and keeping them low, is also key as it will enable firms to apply for SCA exemptions for transactions up to a certain amount. Successfully doing this will help to provide a more seamless shopping experience for customers.
What do companies need to do to ensure their systems are ready for SCA?
3DS 2.0 goes some way towards SCA readiness – but it will not be the one element that will satisfy all circumstances. It comes back to education: Issuers will need to determine what is the best course of action to satisfy SCA for all their customers, and clearly educate cardholders about their chosen approach. If that means instructing cardholders to conduct eCommerce transactions via their smartphones, they will need to communicate this, and of course will need to tell them why. If they decide to go another route, they need to educate their cardholders what that route will be – to manage expectations and ensure transactions are not abandoned.
Visit our Resource Center to find Strong Customer Authentication guides tailored to address the needs of merchants, issuers, acquirers and merchant service providers.
Related Blog Posts
What’s Next for Nordic Payments? P27 and the Rise of Real-Time and Cross-Border
The Nordic region has long been considered a pioneer of digital payments, with some of the lowest cash usage levels in Europe; however, the impact on cross-border payments has been limited when compared to progress on the domestic front. And this is a crucial area to address for a region with large volumes of trade and tourism between neighbors, as evidenced by the fact that 18,000 Swedish workers commute to Denmark on a daily basis. Not surprisingly, improving the cross-border payments experience and efficiency is a high priority.
Digital Overlay Services Unlock the Value of Real-Time Payments
The global payments industry continues to drive toward true real-time, with the potential opportunity for corporate banking often cited as the most lucrative.
Real-Time Payments Hits its Stride in the U.S.
The recent announcement of FedNow in the U.S., the launch of cross-border services like SWIFT gpi, and multiple real-time payment systems including The Clearing House’s (TCH) RTP system and Zelle underline the fact that real-time payments are here to stay. The need to deliver real-time payment services to customers has never been more pressing for banks, credit unions, processors, acquirers and fintechs. However, the U.S. payments ecosystem – and its infrastructure – must keep pace with global markets to remain competitive, and interoperability between real-time payment systems will be key.
How Do You Drive Full Value from SWIFT gpi?
As part of SWIFT and ACI Worldwide’s joint mission to accelerate adoption of SWIFT gpi, ACI’s SWIFT gpi global marketing lead Zhenya Winter spoke with Daniel Lynch, Data Analytics and Payments Innovation Lead at SWIFT, and ACI’s Global Head of Real-Time Payments, Craig Ramsey, about some of the key questions raised by attendees of our second Global Webinar: Drive Full Value from SWIFT gpi. The relevancy of these was reinforced at Sibos 2019, the SWIFT community’s annual conference, which recently took place in London.
India’s Unified Payments Interface: Breaking the Billion Barrier
September brought about quite a stir in the Indian payments ecosystem, with three years passing since the launch of UPI (Unified Payments Interface), and the realization that UPI is closing in on a significant milestone: one billion transactions per month. In September 2019, UPI clocked 955 million transactions, amounting to 1.61 trillion rupees (INR), demonstrating the extent to which Indian consumers have exuberantly welcomed real-time payments.
The Need for Financial Inclusion in Developing Countries
The payments ecosystem globally is changing – and the idea of financial inclusion is increasingly featuring as part of long-term strategy. At a glance, financial inclusion means that people and businesses have access to important financial products, services and data, such as transactions, credit cards, payments, savings and insurance, and that these are delivered in a sustainable way. The challenge for banks lies in being more inclusive and meeting social needs, while remaining profitable and increasing market share.
How to Maximize the Value of Partnerships Between Fintechs and FIs
The LATAM Open Banking & Fintech Partnership, organized by Connect Global Group, was held earlier this year in Mexico City, and ACI participated as one of the forum partners driving discussions on how to maximize value from collaborative partnerships between FIs and Fintechs. We explored the invaluable benefits of open API and strategies to differentiate the offerings of FIs and Fintechs, address consumer demands, and best practices for implementation aligned to regulatory requirements.
Universal Confirmations: Get Ready for 2020
With the arrival of universal confirmations, we sit down with some industry experts to find out more about what impact this will have on transforming cross-border payments. We’re welcomed by Fabien Depasse - Head of SWIFT gpi Customer Success at SWIFT and Craig Ramsey - Head of Real-Time Payments at ACI Worldwide.
How to be a Payments Trailblazer – The Seven Habits of Highly Innovative Organizations
The new Culture of Innovation Index from Ovum and ACI identified segments—from banks to intermediaries to merchants to corporates—at the cutting edge (of innovation) across the payments ecosystem. But what is most notable about those segments that have reached ‘trailblazing’ status is the apparent lack of commonality between them. No one segment, nor one region fosters better innovation. In fact, what’s driving these segments/organizations to be best of breed is their own culture of excellence. The only thing they have in common is their attitude.
How will SWIFT gpi Impact Latin America?
As the world continues to transition toward real-time, and technology continues to evolve, new challengers are disrupting the market with value propositions including real-time cross- border payments. The competition has inspired SWIFT to work with the industry and challengers to create the Global Payments Innovation (GPI) program, which radically changes the way banks interact with their correspondents and offers improved transparency and customer service to their customers.