There is no doubt that Strong Customer Authentication (SCA) has had a significantly beneficial impact in terms of reducing card transaction fraud. It is also widely acknowledged that, despite the efforts of the payments industry to minimise the negative impact, the current SCA user experience can be frustrating and confusing for consumers and leads to lost e-commerce sales through cart abandonment.
Much of this is down to a set of rigid and restrictive Regulatory Technical Standards (RTS) imposed by the European banking Authority (EBA) in order to implement the SCA requirements of PSD2.
FirstPartner was deeply involved in industry preparations for PSD2 SCA implementation, and we saw first hand the complexity that the RTS imposed, and the sometimes baffling adherence to an already outdated interpretation of the principles of 2 factor authentication. This limited the role and adoption of more flexible and effective technologies such as risk based authentication and behavioural biometrics. We probably spent more time talking to lawyers about whether proposed solutions and guidance complied with the precise letter of the RTS than we did thinking about how effective they would be in combatting fraud and simplifying consumer journeys.
While the UK continued with the adoption of SCA following Brexit, the FCA did allow some welcome flexibility from the EBA requirements. However, to date these have not really been sufficient to remove the friction associated with SCA challenges and there is still inflexibility for example contactless payments limits.
It is therefore welcome news that the just published UK Government’s National Payments Vision adopts the key recommendations of the Garner Review into the Future of Payments to remove prescriptive requirements in the technical standards and move to a more flexible, outcomes based rules-making approach. To achieve this, the Government plans to revoke the payments authentication regulations relating SCA in the Payment Services Regulations 2017 enabling the FCA to govern the requirements through its rules in a much more responsive fashion.
The stated aim is that this will provide the industry with more flexibility to effectively prevent fraud while improving the customer payments experience. Our hope is that this will trigger a fresh second wave of SCA innovation to achieve this.
