What are PSD2 and SCA?

In September, the Payments Service Directive 2 (PSD2) came into effect. This is a new regulation that was passed by the EU in 2015, designed to make online payments more secure for both the merchant and the customer. The directive enables consumers and businesses to use third-party providers to manage their finances. Because payment fraud losses are increasing, the EU introduced this policy to reduce the problem. PSD2 coming into effect brought with it Strong Customer Authentication (SCA), a regulation which requires the customer to carry out additional security methods when purchasing online. Once SCA initiates, consumers will no longer be able to checkout online using just a credit or debit card; on top of this they will also need to provide other information.

SCA requires two independent sources of information in order to authenticate customers. Customers will need to verify their identity by providing information from 2 of the 3 following categories when making a purchase online:

Description Example
Knowledge: Something only the customer knows PIN number
Possession: Something the customer has Bank card/phone
Inheritance: Something the customer is Fingerprint

Please keep in mind that transactions fewer than 30 Euros will be exempt from SCA, but the issuing bank will keep a record of the amount of payments made.

Where will SCA take place?

SCA has come into effect across Europe, and applies to online and in-app payments that take place within the European Economic Area. If you operate an online marketplace or app-based business that is based in the EEA and your customer is also in the EEA, your transactions will need to be SCA compliant by September 14 2019. In the UK, SCA will apply whether we leave the EU with a deal or without a deal.

What do I need to do to prepare?

If your business is located in the EEA and you trade with other EEA customers, you can get ready for SCA by thinking about who your current Payment Service Provider is and considering whether you will need to upgrade your payments set-up. It may also be worth getting in contact with your Payment Service Provider to check that they are prepared for SCA.

If you don’t have it already, it may be a good idea to implement 3-D Secure 2.0 into your payment system, as the purpose of 3-D Secure is to make transactions as frictionless as possible for the customer. With SCA, the payment process takes another step to complete, so using 3-D Secure will ensure that the customers’ expectations are met.

How will SCA affect my business?

As fraud is on the increase, the opportunity to prevent fraud should always be welcomed. Merchants can benefit from the implementation of SCA in a number of ways, including:

  • Less chance of fraud happening
  • Increased customer trust
  • More banking and payment options for customers, which can boost eCommerce
  • A cleaner, smoother checkout experience

Still have questions about SCA?

Please don’t hesitate to give us a call on 0161 637 1080 or send us a message via social media – we will be happy to help.