Why strong customer authentication benefits merchants

When the new Strong Customer Authentication (SCA) regulations were put in place, the goal was clear – to reduce e-commerce fraud. But two-factor authentication has also created significant friction in the customer journey.

Sellers are trying to navigate the new regulations and ease the process, but there are gaps in customers’ awareness of the new regulations that are coming into place. A lack of information causes customers to abandon their shopping carts or retailers for good, thus affecting sellers’ income.

To evaluate consumer awareness of SCA and their attitude towards it, e-commerce fraud protection platform Signifyd conducted a survey of 2,000 consumers each in the UK, Italy and France in collaboration with OnePoll, and presented the results in an e-book.

We examine why customer awareness of SCA regulations is essential, and what sellers can do to reduce these issues.

How does SCA affect customers?

Due to the increasing fraud pressures resulting from the boom in e-commerce sales, new payment rules have been implemented across Europe and the UK. The Payment Services Directive 2 (PSD2) requires Strong Customer Authentication (SCA). The aim is to ensure the legitimacy of online orders, maintain customer confidence in online purchases and maintain the growth of the e-commerce economy.

Customers must complete a two-factor authentication during the online checkout process to validate their identity.

They must choose two of three independent authentication factors, including:

• Something the customer knows (e.g. password, PIN code, secret answer)
• Something the customer has (e.g. mobile phone or token used to make the purchase)
• Something the customer is (e.g. fingertip, voice recognition, facial recognition)

All e-commerce transactions within the EEA area are subject to the SCA.

Are consumers aware of SCA?

Regardless of the new changes that came with full enforcement in Europe and the UK, consumers lack sufficient awareness of the SCA.

Signifyd’s customer awareness survey shows that just over half of UK respondents (53%) are aware of SCA; and in Italy and France this is less than a third of the respondents.

As expected, the younger population is more aware of SCA than older age groups; and those aged 25–34 have the greatest awareness of the changes in all three countries. In contrast to France and Italy, Great Britain does not see a large discrepancy between awareness in the different age groups.

Who is responsible for customers’ ignorance of SCA?

The responsibility for informing customers about the new regulations lies with the bank/card issuer. Nevertheless, 47% of respondents have not received such information.

Once the communication has been sent, customers must also take time to familiarize themselves with the new process. However, 16% of UK respondents who have received information about the SCA have not read it. In Italy and France, respondents tend to neglect SCA communication more than in the UK.

Perhaps banks/card issuers could work with merchants to suggest better ways of communicating about payment changes to raise awareness.

In addition, merchants can also spread information about upcoming changes and use their websites and social media to highlight the new authentication process. In this way, they create more trust in the process and ensure more completed transactions.

What does customers’ ignorance of SCA lead to?

In today’s e-commerce landscape, customers are looking for speed and efficiency in their shopping experience. One negative review, or using the wrong font, can cause sellers to lose their customers. In fact, 80% of mobile orders in the second quarter of 2022 in the UK were not completed. Retrospectively, 74% of orders made on tablets and 72% on computers were also incomplete.

With such high abandonment rates, friction in the checkout process can be detrimental to purchases, especially when customers are unaware of SCA and its fraud prevention benefits. Signifyd’s research shows that 33% of UK respondents have decided not to shop with a particular retailer after being asked to complete additional verification steps.

Friction in the payment process can lead to a total loss of customer loyalty, as respondents in the UK claim that it takes 2.6 negative shopping experiences before they decide not to shop with a particular retailer again. And finally, 68% of UK online shoppers are “likely” or “very likely” to switch to a larger retailer if they had a bad experience with a small company.

The new SCA regulations provide a framework for better protection against e-commerce fraud. As merchants navigate the new process, step up their customer retention game, and also rethink the checkout experience, some online shoppers are in the dark about the changes.

By partnering with banks/card issuers, merchants can increase awareness of SCA and its benefits to reduce card churn and increase their revenue.

About the author: Ed Whitehead is the Managing Director of EMEA for Signifyd, where he leads a team dedicated to
the expansion and support of Signifyd’s European customer base.