Two months with SCA – what's changed?

SCA: the three-letter acronym that's been on everyone in the payment industry’s lips since its introduction in March 2022. As you likely already know, under PSD2 in Europe, Strong Customer Authentication (SCA) is now a requirement for banks and payment service providers to verify transactions. In practice, this means they must now be able to authenticate payments using at least two of three factors: Something in their possession (such as a mobile phone or hardware token); something they know (such as a PIN number or password); or something that’s a part of them (such as their fingerprint or face recognition).

The problem for older solutions, like cards, is that they’re not built to support SCA by default. Imagine building a new house but trying to install the plumbing afterwards – it’ll probably work for a while, but there’s sure to be leaks. Based on early data, we can already see this with the hasty updates unprepared merchants have made since the regulation came into effect in March 2022. 

Frustrating for consumers, costly for merchants

For consumers, the SCA regulation has resulted in an additional hurdle in the payment journey when using debit or credit cards in the form of biometrics, one-time passwords (OTPs), and SMS verifications. Naturally, if these fail, it could lead to declines and cart abandonment at checkout.

In fact, according to data from Barclaycard Payments, because many online businesses are still not fully SCA compliant, 22,000 transactions (worth GBP 4.3 million in sales) were declined every day in the month since SCA became mandatory. While the full impact of the change is still being investigated, it is clear that SCA has been a shock to the system for UK retailers. 

From a security perspective, recent figures from Nationwide Building Society have shown that SCA has had a positive effect on reducing fraud – one of the things it set out to do. Indeed, since its introduction, Nationwide says SCA has helped stop 2,000 cases of online card fraud a month. So, while shopping has become more challenging from a consumer point of view, Nationwide’s research suggests that the regulations are proving effective.

More than two-thirds of Nationwide members complete the SCA check using their mobile banking app, while 21% authenticate using a one-time passcode sent via text message. This is in line with other evidence that one-time passcodes are open to fraud, so inherent SCA with biometrics is a much better way to lower risk. 

Third time (un)lucky

While shopping is becoming safer, getting the checkout experience right is essential for merchants: according to a new study by Trustly, 43% of consumers say that if they are declined, they will only try two different payment methods before giving up. With the introduction of SCA, this two-strikes-and-you’re-out behaviour is likely to have a significant impact on the end-uer experience – and ultimately the merchant’s conversion.

• 43% of consumers would give up if declined twice;

• 33% would give up after 1 attempt;

• Only 10% would try 3 times.

Diverse checkouts are healthy checkouts 

Even though regulation like SCA is a move to keep up with the increasingly more sophisticated fraud methods, relying too much on systems born in the mid-1900s isn’t sustainable when there are better digitally native solutions. These solutions already have SCA built into their flows (such as fingerprint and face recognition), so don’t have to retrospectively shoehorn it in. Knowing that cards are still hanging on to the top spot in terms of consumer popularity – old habits die hard – it will be key for merchants to make sure there are other options in place to not lose the sale to another merchant.

Keeping consumers and their money secure is of course a priority – this is, after all, the most important factor determining consumers’ choice of payment method at the checkout. But this needs to be incorporated in a way that’s simple to use. This evolution of safer card payments creates additional friction on top of an already cumbersome experience (compared to digital wallets and Account-to-Account Payments (A2A)). Because of this, the introduction of SCA injects a massive boost to the already ongoing shift in consumer preference for alternative payment methods.  

The future is A2A

Open Banking payments grew by 500% in 2021 according to figures from OBIE, and with the advent of SCA, the rush from cards to other payment methods is likely to continue. Increasingly tech-savvy consumers will seek alternative, more seamless payment solutions – and will have no qualms looking to other merchants if the checkout process is too complicated. For them, instant gratification and efficiency are key. In addition, the desktop to mobile shift will play an important role in the transition from card payments, with a much larger proportion of transactions now happening in shoppers’ palms. With the increasing costs associated with cards and a growing consumer willingness to use A2A, merchants will not only start adopting A2A, but they’ll also implement it as a primary option at checkout.

About Ciaran O'Malley

Ciaran is Vice President of Financial Services & Ecommerce at Trustly, and is also responsible for relationships with Payment Services Provides, Platforms, and other technical integrators. Alongside this, Ciaran has been involved in Open Banking in the UK and other industry initiatives such as SWIFT’s Pay Later API standard. Prior to Trustly, Ciaran worked in investment banking at Credit Suisse as a Derivative Quant working on the implementation of CRD IV, as well as SocGen and Nomura in Financial Institutions Mergers & Acquisitions.

About Trustly

Founded in 2008, Trustly is a Swedish fintech company and leader in digital account-to-account payments. Trustly’s platform redefines the speed, simplicity, and security of payments, enabling consumers to pay merchants directly from their online bank accounts. Trustly can also handle the entire payment journey, offering an attractive alternative to traditional card networks at a lower cost. Trustly works with companies such as The Hut Group, Boozt, Zalando, IKEA, and KLM.