SCA for PSD2 could cost merchants more than EUR 100 bln in 2021

According to the press release, these costs might come if merchants are not given more time to prepare for a new two-factor authentication mandate intended to reduce credit and debit card fraud. Moreover, CMSPI’s SCA Economic Impact Assessment report says the technology 'remains relatively new and unproven' and 'adds significant unnecessary friction to the online commerce experience.' While banks may be satisfied that 3DS2 is compliant with SCA, 'European merchants need solutions that are both compliant and consumer friendly,' the report said. 

Besides, transactions are rejected if the customer fails to provide the required two of the three steps – knowledge, inherence, or possession – and the process adds between 60 seconds and two minutes to the checkout process. Testing shows 25% of 3DS2 transactions are abandoned by consumers, compared with single-digit numbers without the technology.

Overall, testing shows 35% of 3DS2 transactions fail to go through, either because they are declined, abandoned by frustrated consumers or because of technical errors. If not corrected, that would amount to EUR 108.1 billion in lost sales based on 2019 sales volume. Ironically, that is almost 100 times the annual amount of card fraud – the problem SCA and 3DS2 are intended to solve. However, the number excludes transactions made with digital wallets such as Apple Pay or PayPal, which have their own SCA-compliant solutions that add less friction to checkout.

Furthermore, consumers often blame retailers for online delays, and large retailers with the resources to minimise delays are likely to win customers from smaller retailers that do not. Small retailers are expected to be the hardest hit, accounting for EUR 69.4 billion of the total compared with EUR 38.7 billion for large merchants.

The report breaks out the impact of SCA on France, Germany, Italy, Spain, Belgium, Netherlands, Poland, Sweden, Denmark, Finland, Iceland, and Norway.