Capitalising on Strong Customer Authentication: preparedness as a competitive advantage

While the payments industry welcomed the recent European Banking Authority (EBA) Opinion setting out a clear roadmap for migration to Strong Customer Authentication (SCA), with it came advice that from 31 December 2020, issuers should begin to decline transactions which don’t meet the requirements for SCA. The threat of lost revenue during one of the busiest times of the year for retailers has the potential to bring chaos at holiday time. Managed correctly however, a phased introduction of SCA could create a competitive advantage over those retailers left unprepared.

Using the time ahead to prepare

The EBA Opinion sets out clearly defined time-frames and an expectation for Payment Service Providers (PSPs) to share their migration plans with local regulators. These reviews will help PSPs to maintain focus on supporting merchants as they transition to SCA, aiming for a glide-path introduction, rather than a mad dash towards compliance during the festive season of 2020.

With this in mind, J.P. Morgan advises merchants to take full advantage of the time between now and the end of 2020 to deliver a phased programme of readiness. While many merchants may be under a ‘tech-freeze’ this quarter to avoid disrupting the upcoming holiday spending season, it’s an ideal time to plan migration activities for the year ahead. With a robust plan in place, merchants should be ready to begin implementation once the tech freeze is lifted in January 2020.

Informing and onboarding customers

Beyond the payments industry, the general public still has limited understanding of what the introduction of SCA will mean to them. Merchants can use this as an opportunity to form a new relationship with their customers and educate them about upcoming changes, while at the same time demonstrating the benefits these measures will bring.

Compliance will, however, pose different challenges for different industries which have varying levels of complexity. For example, in the travel and hospitality sector staggered payment processes are commonplace and one booking may involve multiple suppliers, such as hotel, car hire and airlines. This poses increased challenges for the industry to develop a stream-lined solution that maintains a high level of customer satisfaction whilst also complying with SCA. Nonetheless, by introducing SCA to a percentage of customers as soon as possible, merchants will gain an understanding of potential issues, giving them time to iron out any snags and avoid payments hiccups once SCA becomes mandatory. This will also allow time for customer feedback and subsequent adjustment of messaging and payment flows to optimise the consumer journey. Delaying implementation increases the avoidable risk of payments friction, customer dissatisfaction and potentially lost revenue.

What steps should merchants take?

Here are five things we recommend merchants act on between now and 2020:

1. Integrate 3D Secure 2.1 now, with a phased roll-out of 3DS 2.2 when it becomes available;
2. Check that gateway or third-party technology partners you rely on are 3DS ready;
3. Educate consumers on the changes they can expect to see and how this will impact them;
4. Test implementation and phase transaction traffic to 3D Secure;
5. Work on reducing fraud. This can help merchants to avail of a Transaction Risk Analysis exemption to SCA. For example, J.P. Morgan will review merchants with an applicable fraud rate below 6 basis points to assess their suitability for claiming a Transaction Risk Analysis exemption of EUR 250.

When the festive shopping period subsides merchants should hit the ground running with these plans; and those without them should develop a strategy immediately.

Reducing payments friction

Using the time ahead efficiently and proactively, merchants will be able to reduce the potential for friction in the payments process and decrease the likelihood of basket abandonment as one-click shopping changes.

Regulation is often met with a moot response, or even disdain, but this need not be the case with SCA. Passive biometrics, tokenisation and secure-code confirmation are all set to become payments mainstays, reducing fraudulent transactions, lowering friction and basket abandonment and increasing customer satisfaction in the payment journey.

The key advice for merchants in the next 13 months is to use this time to pilot, test and phase-in SCA incrementally. 

But most of all test, tweak and test again!

About Brian Gaynor

Brian Gaynor is co-lead of J.P. Morgan Merchant Services Europe, the merchant acquiring and payment processing arm of J.P. Morgan Chase & Co. He is Head of Product and Strategy for the European Merchant Services Business.

Brian is responsible for product development within Europe and its integration with clients’ systems along with the management of the impacts of regulatory change on the business. Brian has over 30 years in product and technology development across the payments, telecommunications, internet and life assurance industries.

Brian has held a variety of senior positions from system development to product and portfolio management. Prior to J.P. Morgan, Brian was Head of Projects at Three Mobile Ireland and Chief Architect at America Online.

About J.P. Morgan Merchant Services

J.P. Morgan offers a full suite of payments services to enable a seamless connection across the payments continuum for clients. Merchant Services is the payment acceptance and merchant acquiring business of JPMorgan Chase & Co. According to The Nilson Report, it is also the top merchant acquirer of e-commerce transactions in Europe.