29 September 2020
‘SCA is not the end of times, but a necessity’
‘Cardmageddon’. This is what worried players in the payment world call the introduction of Strong Customer Authentication (SCA), a new set of rules that changes the way you confirm your identity when making online purchases. Retailers expect the SCA standard – actually a combination between something you own, an ATM card or phone, and something you know or are, such as a PIN code or fingerprint – to lead to friction at checkout, causing consumers to leave their digital shopping basket behind. With a massive drop in sales as a result.
The implementation of SCA requires banks, payment service providers, card networks and merchants to work together, but not every European country is ready in time for the deadline of 31 December, 2020. This is despite the fact that the European Banking Authority (EBA) granted a grace period earlier. The parties involved do not have to count on another grace period, says Gijs Boudewijn, Deputy General Manager of the Dutch Payments Association and member of the European Banking Federation. “I checked and that's not going to happen again. But meanwhile, rumour has it that individual national competent authorities might be a bit more flexible when the time comes.”
In this blog, Boudewijn explains how Europe is doing, how the Netherlands has chosen a joint implementation strategy and why there is no point in delaying further. “SCA is not the end of time, as some parties claim, but a necessity.”
According to Het Financieele Dagblad, the Dutch Financial Telegraph, not all of Europe is ready on time for the deadline. The backlogs are greatest at payment institutions in Cyprus, Spain, Estonia, Latvia, Lithuania and Portugal.
Boudewijn: "We do not have a clear picture of exactly how Europe is doing. In the Netherlands, we set up a joint plan with all the banks and stakeholders right from the start, with the Dutch Payments Association in a coordinating role. We have done this following the example of UK Finance, but in most other European countries there is no such joint approach.. As far as I know, in the Netherlands everyone will be ready on time for the deadline, but large parts of the European ecosystem are not. Webshops have to be able to cope with the mechanism, and that might become a problem. The implementation is particularly difficult in the travel & hospitality industry because of the complex chains with many intermediaries.”
Do merchants justifiably worry about declining sales?
Boudewijn: “Consumers will have to get used to the extra security for the first time. But people get used to it quickly, so as a retailer you have to hang in there for a while. Some transactions may go wrong in the beginning, but if this becomes the only way to pay, consumers will come back automatically. So, I don't believe that retailers will be suffering huge losses. One way or another, consumers will continue to buy things online.”
A new grace period doesn't solve the problems, does it?
Boudewijn: “No, because it has nothing to do with the date on which you introduce the SCA standard. The first time is always a matter of getting used to, whether you pay online according to the new standard on 1 January or six months later. That's why it doesn't make sense to me to further postpone it, merchants have to bite the bullet for extra consumer safety. And don’t forget, this has been coming for five years. It's inevitable, it has to happen sometime. I don't expect any chaos either, the consumer will probably have to get used to it for a while and then they'll get on with everyday life.”
Don't you see any problems for the Dutch online retail?
Boudewijn: “No, not really, but that is also because the credit card is not that important over here. We have been paying with iDEAL for many years, which is a payment method that meets two factor authentication since 2005 and has a market share of 68 percent. The credit card has only a 10 percent market share in our country. Cross-border shopping may be affected though.”
Meanwhile, we see that internet fraud has increased alarmingly since the corona crisis, so for the safety of consumers it would be good to move quickly to the implementation of SCA.
Boudewijn: “That's right, and “card not present” transactions are causing a huge amount of debit and credit card fraud, so the need for the implementation of SCA is growing. There is actually no argument to wait any longer with the introduction of SCA.”