Why the time is right for Pay by Bank

Brad Goodall, CEO of Banked, explains how Strong Customer Authentication (SCA) regulations could create new opportunities in the payment industry

During the process of making online payments in recent months, an increased emphasis on identity verification has become evident. Whether being prompted for a code via text message or redirected towards an extra login step, there seems to be a new insistence on extra confirmation that the user is who they say they are.

This wave of added security measures has come about due to the much-discussed Strong Customer Authentication (SCA) regulations, which have affected banks across the European Economic Area (EEA) and the UK, requiring them to perform added checks when customers make payments in order to verify their identity.

SCA has been on a complexity level similar to GDPR, with rules subject to varying interpretations among card networks, national regulators, and issuing banks. While the deadline for implementing SCA was first set for March 2021, the FCA delayed this to come into effect from 14 March 2022 due to the pandemic.

The motivation behind the SCA regulations

SCA was introduced to mitigate a growing fraud issue, which has caused international concern over recent years after skyrocketing to staggering levels. Last year, ecommerce losses to online payment fraud reached an estimated USD 20 billion globally, a figure that is 14%  higher than the previous year.

These increases can be linked to the COVID-19 pandemic, a period that saw an exponential growth in time spent online. In 2020, fraud losses on UK-issued cards came to a total of USD 750.4 million in 2020. Online fraud against UK retailers reached approximately USD 342.8 million that same year, showing a 9% increase from the previous year.

The unique circumstances of the pandemic enabled criminal gangs to devise new and elaborate online scams. As the risk grows worldwide, the SCA regulations are part of a united international effort to protect customers. This effort is what we are starting to see in everyday transactions.

After all, if retailers do not abide by the new SCA regulations, they risk purchases being refused: in January 2022, some card issuers already began to decline non-compliant transactions, and all non-compliant transactions are set to be denied after the March deadline.

The impact of additional steps on the checkout process

While the implementation of SCA regulations has come about in order to mitigate fraud, it puts a new strain on the customer experience. When a customer receives text messages requiring codes or other identity verification methods before purchase, it makes for a more convoluted experience. Such additional steps come at a cost to businesses.

Specifically, added friction during checkout significantly influences whether or not a customer completes their purchase. Almost a third of shoppers who abandoned a purchase have reported doing so due to a checkout process being ‘too long or complicated’.

This can have an unprecedented impact on business performance in the long term. Retailers have reported that cart and checkout abandonment can result in up to a 70% loss in sales on average. In India, similar SCA legislation resulted in a sudden conversion rate decrease of 25% across some firms.

An opportunity for new and innovative payment methods

The SCA regulations have thrown open the door for innovation in the payment industry, with emerging opportunities for secure, user-friendly authentication experiences. One example is Pay by Bank, a quick and seamless payment method using fingerprint or face recognition to authorise a payment.

This method enables shoppers to pay quickly and securely using their mobile without the need to type out payment details, login usernames or passwords. The process takes customers straight to their bank account and asks them to accept the transaction. It provides a smoother customer experience than most of the others available.

Pay by Bank virtually eliminates fraud risk by design: authorisation is done using biometrics rather than card details and a security number. There remains a small level of friction in the process when the customer is asked to do a quick approval check, providing merchants with approval to withdraw funds from their banking app. However, this is a much more intuitive user experience than alternatives.

Although customers are equally keen to protect themselves from the increased risk of online fraud, they also expect intuitive and simple ways to carry out online payments. The industry players who respond to this demand are the ones who are set to thrive.

About Brad Goodall

Brad Goodall is a dynamic and progressive figure in London’s tech scene. He has worked with some of the biggest brands and names in technology and finance across Europe, the US, Australia, and Asia. His previous business was 10x Future Technologies. His latest venture Banked burst onto the scene in 2020 to build a payments network to rival Visa and Mastercard. Brad leads the company as CEO, responsible for the direction and growth of the organisation.

About Banked

Banked is a global payments network built on modern bank rails. It powers real-time payments for consumers, businesses and banks, improving the customer experience, payment security, business efficiency and cost effectiveness – a better way to take payments and make payments.