What is SCA? (+ How it Benefits Consumers)

Alexis Damen | April 11, 2023

With the rise of online payments and financial transactions, the need for secure authentication methods has become increasingly important. SCA, which is short for Strong Customer Authentication is one method that ensures online transactions are safe by requiring customers to provide two or more forms of authentication to verify their identity.

SCA is a requirement of the Payment Services Directive 2 (PSD2) in the European Union, but its importance extends beyond the EU, as financial institutions around the world seek to protect their customers and prevent fraud. But what exactly is SCA?

In this article, you’ll learn all about SCA, how to implement Strong Customer Authentication, its benefits, challenges, and how to be prepared so you can keep your business and customers safe.

What is SCA?

SCA is a security protocol that is designed to protect online payments and financial transactions from fraud and unauthorized access. The purpose of SCA is to ensure that only authorized parties can access sensitive financial information and initiate transactions.

SCA requires customers to provide two or more forms of authentication to verify their identity during certain high-risk financial transactions. These authentication elements are divided into three categories: knowledge, possession, and inherence.

Knowledge-based authentication requires the customer to provide something they know, such as a password, PIN, or answer to a security question.
Possession-based authentication requires the customer to provide something they have, such as a mobile device or smart card.
Inherence-based authentication requires the customer to provide something they are, such as a fingerprint or facial recognition.

SCA is required in situations where the risk of fraud or unauthorized access is deemed to be high. For example, SCA is required for all electronic payments within the European Union under the Payment Services Directive 2 (PSD2). SCA is also required for online transactions such as money transfers, account access, and e-commerce purchases. By implementing SCA, financial institutions can reduce the risk of fraud and provide a more secure environment for customers.

What are the benefits of SCA?

SCA provides several benefits to customers, e-commerce businesses, and financial institutions.

Here are some of the key benefits of SCA:

Protection from fraud and identity theft

SCA is an effective method for protecting customers from fraud and identity theft. By requiring multiple forms of authentication, it becomes much more difficult for unauthorized parties to access sensitive financial information or initiate fraudulent transactions.

Compliance with regulations

Financial institutions are required to comply with various regulations and standards to ensure the security of their customers' information. SCA is one such requirement, and implementing SCA helps financial institutions meet these regulatory requirements.

Payment service providers (PSPs) like MONEI also need to be compliant and the security trickles down to your business if you integrate your e-commerce store with a payment gateway to securely accept online payments.

💡Pro Tip: Check out our guide on how to choose the best payment gateway for your e-commerce business to learn what questions to ask and factors to consider before you select a payments partner.

Builds trust between customers and financial institutions

By implementing SCA, financial institutions demonstrate their commitment to protecting their customers' financial information, and this builds trust.

But how does this apply to e-commerce? Good question. Adding SCA in the form of 3D Secure authorization to your e-commerce store for transactions over a certain amount, for example, can help build trust with your customers.

As the world becomes increasingly digitized, SCA will continue to play a critical role in ensuring the security of online payments and financial transactions.

How can you implement SCA?

Implementing SCA involves a few steps.

Here’s an overview of the process:

Identify which transactions require SCA. First, you need to determine which transactions require SCA. This will typically involve assessing the level of risk associated with each transaction.
Choose authentication elements. Then, choose which authentication elements you will use for SCA. This will typically involve a combination of knowledge, possession, and inherence-based authentication.
Develop and implement the technology. Lastly, develop and implement the technology required for SCA. This may involve upgrading existing systems or implementing new ones.

💡Pro Tip: A good PSP will help you safely manage online payments with built-in PSD2 compliance and SCA technology. Get started with MONEI ››

What are examples of SCA technology?

The technology involved in SCA typically includes biometric authentication, such as fingerprint or facial recognition, and one-time passwords generated by mobile devices or smart cards.

SCA can be integrated with existing systems in several ways. For example, financial institutions can use APIs to integrate SCA into their payment systems or you can use a payments API to integrate SCA into your e-commerce store. This allows customers to complete SCA authentication without leaving the payment page.

What are the challenges of SCA and how can you overcome them?

While SCA offers many benefits, there are also some challenges that financial institutions and businesses may face when implementing it.

Here are some of the common challenges of SCA implementation:

User experience. SCA can add an additional layer of complexity to the customer experience, which can impact customer satisfaction. If the authentication process is too complicated, customers may abandon their carts.
Cost. Implementing SCA can be costly for financial institutions and businesses, particularly for those with legacy systems that require significant upgrades. But luckily, as an e-commerce business, you can use a reliable payment gateway to implement SCA.
Fraudsters find ways to circumvent SCA. As with any security protocol, there is a risk that fraudsters will find ways to circumvent SCA. For example, fraudsters may try to intercept one-time passwords or steal biometric data.

To overcome these challenges, financial institutions and businesses can take several steps.

Here are some examples:

Optimize user experience. Optimize the user experience by implementing user-friendly authentication methods and minimizing the number of authentication steps required. MONEI does this with a simple 3D Secure challenge so you can eliminate the risk of losing sales due to a complicated SCA process.
Consider outsourcing. Outsource your SCA to third-party providers (i.e., your payment gateway). This can reduce costs and provide access to cutting-edge authentication technology.
Continuous monitoring and improvement. A good PSP or financial institution will continuously monitor its SCA system to detect and respond to any potential breaches or attacks, and as a user/customer, these improvements will also benefit your business.

Moving forward with SCA

As the world becomes increasingly digitized, SCA will continue to play a critical role in ensuring the security of online payments and financial transactions. It’s essential for financial institutions and businesses (including e-commerce) to stay up to date with the latest SCA technologies and regulatory requirements to protect customers' sensitive financial information and prevent fraud.

While there are some challenges associated with implementing SCA, with the right PSP you can overcome them and make sure your e-commerce transactions are safe, secure, and PSD2 compliant.

Alexis Damen

Alexis Damen is the Head of Content at MONEI. She loves breaking down complex topics about payments, e-commerce, and retail to help merchants succeed (with MONEI as their payments partner, of course).

#Payment Security #Online Payments #Payment Services #Fintech