SCA and the impact on e-commerce

This article is brought to you by Retail Technology Review: SCA and the impact on e-commerce.

By Joshua Beale. Principal Account Director, Mapp Digital. 

If you’re in the UK, you will already be aware of the Strong Customer Authentication (SCA). Brands and retailers implemented changes way before the deadline (14 March 2022) to help combat fraud. For shoppers, it’s a win to get that extra layer of anti-fraud protection on their online card payments. But customers may also face more ID verification requests at the point of transaction. This means both e-commerce merchants and customers now face a new challenge: a new barrier in the customer shopping journey.
 
Marketers have paved the way through channels, PPC ads, and more, to get traffic to their product pages and bring customers to the checkout point. Yet around 30% of these transactions will potentially fail 3DS or be abandoned. The risks of high basket abandonment and a slump in sales is a Marketing SOS (Save Our Sales) call for you to ramp up your strategies to help bring back customers.

What have been the changes?

The SCA is a new payment security method that’s been brought in to add an extra security layer in electronic payments to prevent checkout fraud. PSD2 requires that all transactions that aren’t flagged as exempt or out of scope be declined and sent to 3DS.
 
Strong Customer Authentication is triggered before accepting an online transaction and based on a few scenarios. For instance, shoppers may be prompted to verify that they are who they claim to be when making a high-value purchase or a high number of low-value e-commerce transactions that seem out of the ordinary to their bank. These verifications are pretty similar to the authentication measures used when logging in to online banking.
 
As part of SCA compliance, merchants need to incorporate extra authentication into their checkout process. The FCA has encouraged e-commerce merchants and Payment Provider Services to work together with tech vendors to make verification easy for shoppers to try to smooth the customer journey.
 
This can be achieved through multi-factor or two-factor authentication. Card issuers have already been declining some non-compliant online payments since January, but all non-compliant transactions will now be declined. The SCA requirements were originally announced by the Financial Conduct Authority (FCA) with UK Finance pre-Brexit. The deadline was extended to March 2022 to give more time for payment providers to help online retailers upgrade their checkout payment process due to COVID-19.

What has this meant for e-commerce merchants and shoppers?

While Strong Customer Authentication rules have been put in place to give shoppers peace of mind and help merchants to have measures in place that draw fewer chargebacks, these come with some challenges.

Shoppers get fraud protection, but at a cost

Scammers are now having to get even more creative to get shoppers to trip up once or even twice. And, of course, if you had to choose between a flawless customer experience and online payment fraud protection – you’d choose the latter.
 
The benefit is simple: having e-commerce merchants implement additional authentication before accepting card payments helps to protect shoppers and make them feel more confident about shopping online. But now the SCA comfort is in place, the frustration of SCA will also creep in as customers may often come into contact with their arch-nemesis: friction and declined payments.

Merchants get a safety net, but a leaking hole in their sales bucket

The good news is the extra layer of SCA protection helps prevent chargebacks and all that comes with it. But the bad news is that more sales are at risk of being declined or abandoned – and some customers may be unforgiving.
 
Until recently, Mastercard says only 1% of online purchases triggered a password input verification or something similar. Now, it expects about 25% of online transactions to require a form of extra authentication by the shopper after the deadline.
 
Through no fault of your own, this highly negative experience of declined payments can have shoppers irrationally associate this with your brand – even if it’s happening across all brands! This makes customer acquisition more challenging and creates a leaking hole in your sales bucket. But like anything that leaks, you need to catch each drop of sale that falls and implement a strategy to bring customers back to complete the purchases from your brand.