Understanding Strong Customer Authentication

This article will explore how SCA works, its main requirements, its impact on businesses, possible exemptions, and how it can be effectively implemented.

What Is Strong Customer Authentication?

SCA is a security requirement that protects online payments by asking users to verify their identity in two or more ways, like entering a password and confirming through a mobile device. It’s a mandatory standard for electronic payments within the European Union and the European Economic Area. The aim is to reduce online fraud and ensure safer digital transactions. SCA applies to a wide range of industries, including gambling payment processors, which must follow these rules to process payments securely. By adding extra steps, SCA helps confirm that the person making a payment is the account holder.

The Three Elements of Authentication

To meet SCA standards, a payment must include at least two out of the following three security elements. These are designed to make sure the person making the transaction is really who they say they are by:

• Knowledge: This is something only the customer knows. It could be a password, a PIN, or an answer to a security question. It’s private and not easily guessed.
• Possession: This refers to something the customer owns. Common examples include a mobile phone, a smart card, or a security token that receives a one-time code.
• Inherence: This is something the customer is. Think of biometrics like a fingerprint, voice pattern, or facial recognition. It’s unique to the individual.

Using just one of these isn’t enough. For a transaction to follow SCA rules, two or more elements must be verified. This helps reduce fraud and is especially important in high-risk industries where an online casino chargeback could otherwise be more likely.

Why Strong Customer Authentication Matters

SCA plays a vital role in protecting users from unauthorized access and payment fraud. By requiring multiple layers of verification, it is harder for someone to misuse another person’s payment information, even if they have some of the details. With the growing popularity of online payments and digital banking, the risk of cyberattacks has also increased. SCA helps keep these transactions secure, giving both businesses and customers peace of mind. It also builds trust. When consumers know their data is protected, they’re more likely to complete purchases. This is especially important in sectors like a no KYC casino, where user confidence is crucial.

When SCA Is Required

SCA is required in situations where there’s a higher risk of fraud or unauthorized access, especially during digital transactions. Here are the main cases where SCA must be applied:

• Online card payments: Anytime a customer makes a purchase using their card on a website or app, SCA kicks in to verify their identity.
• Bank transfers: Whether sending money to someone or paying a bill online, SCA is needed to confirm the user is authorized to make the transaction.
• Access to account information: When logging into online banking or a financial app, users must go through SCA to protect sensitive data.

In-person payments are usually exempt from SCA unless the method involves biometrics—like a fingerprint scan on a smartphone.

SCA Exemptions and Exceptions

While SCA boosts payment security, there are situations where it’s not always required. These exemptions help keep the process quick and user-friendly:

• Low-value transactions: Payments under €30 may skip SCA unless too many are made in a short time.
• Recurring payments: After the first charge is verified, regular payments for the same amount and recipient can be exempt.
• Trusted beneficiaries: Users can whitelist certain merchants, reducing the need for repeated authentication.
• Corporate payments: Business-related transactions through secure systems may qualify for exemptions.

Risk-based authentication and transaction risk analysis help decide when a transaction is low-risk enough to bypass SCA without sacrificing safety.

How SCA Affects Merchants and Businesses

SCA can introduce extra steps during checkout, which sometimes causes friction for customers, leading to longer payment times or even abandoned carts. This can impact conversion rates, especially if the process feels confusing or inconvenient. To stay compliant, merchants need to:

• Update their payment systems to support SCA.
• Work closely with their payment service providers (PSPs).
• Ensure the checkout flow is clear and user-friendly.

Payment service providers play a key role in handling most of the SCA logic behind the scenes. They help apply the right security measures, manage exemptions, and keep the process smooth while still meeting regulatory requirements.

Implementing SCA: What Businesses Need to Do

To implement SCA, businesses should update their checkout flows and integrate 3D Secure 2 (3DS2) for smooth authentication. Partnering with compliant payment service providers (PSPs) is essential to meet requirements. Additionally, educating customers about the new steps helps reduce confusion and ensures a better payment experience during the transition to stronger security.

Technology Supporting SCA

Strong Customer Authentication relies on several key technologies to keep payments secure:

• 3D Secure 2.0: An improved protocol that verifies customers during online card payments with less friction.
• Mobile authentication apps: Apps that generate one-time codes or send push notifications for quick approval.
• Biometrics and device recognition: Using fingerprints, facial scans, or trusted devices to confirm identity.

However, integrating these tools can be challenging for businesses with older legacy systems that may need upgrades to support new security standards.

Strong Customer Authentication and PSD2

SCA is a key part of PSD2, the EU’s directive promoting open banking, innovation, and stronger security. PSD2 encourages safer, more transparent payments, and SCA ensures transactions are verified with multiple factors. Together, they create a secure environment that protects consumers while enabling new financial services to flourish across Europe.

Global Adoption and Variations

While SCA is specific to the EU, many other regions have similar security standards. In the U.S., multi-factor authentication serves a comparable role in protecting online payments. Global platforms often adapt by implementing flexible systems that meet different countries’ rules, ensuring secure transactions no matter where customers are located.

The Future of Customer Authentication

The future of customer authentication is moving toward more seamless and secure methods. Passwordless logins, which use biometrics or device recognition, are becoming popular. Behavioral biometrics analyze how users interact with devices for added security. Adaptive authentication adjusts security steps based on risk levels. We can expect ongoing regulatory updates that push for smarter, user-friendly SCA standards to keep pace with evolving threats.

FAQs

What is strong customer authentication?

A security process requiring users to verify online payments using two or more independent factors.

Why is strong customer authentication important?

It helps protect against fraud and ensures that only the rightful user can authorize a payment.

When is SCA required?

It applies to most electronic payments and account access in the EU, especially card-not-present transactions.

Are there any exemptions to SCA?

Yes, including low-value transactions, recurring payments, and payments to trusted beneficiaries.

How can businesses comply with SCA?

By using technologies like 3D Secure 2 and partnering with compliant PSPs to authenticate users.

Does SCA apply outside the EU?

Not legally required, but many global businesses adopt similar practices.

References

Fraud: Strong Customer Authentication (SCA) – What it is and how does it work?
https://www.fraud.com/post/strong-customer-authentication

Medium: Demystifying Strong Customer Authentication in 2024!

https://medium.com/@simionescu.laurentiu.code/demystifying-strong-customer-authentication-in-2024-f3aee78bdf14

Checkout: Strong Customer Authentication (SCA) explained

https://www.checkout.com/blog/sca-101

PingIdentity: Strong Customer Authentication & Compliance Under PSD2

https://www.pingidentity.com/en/resources/blog/post/the-scoop-on-strong-customer-authentication-sca.html