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Your card is about to be declined more

The introduction of tighter card security rules called Strong Customer Authentication mean shopping online will involve more friction, potentially a boon for some fintechs.

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Photo by Andrea Piacquadio from Pexels

You might notice this week that your card is a bit harder to use when buying things. You will also probably notice that the process will involve verifying your purchases at checkout more often.

Welcome to the world of Strong Customer Authentication (SCA), a new regulatory regime aimed at tackling online fraud. It comes into effect in the UK today for purchases over £25.

Starling Bank, Chase and a host of other banks, neobanks and payment providers such as Klarna have warned customers that in some cases merchants who have not prepared for the new technology requirements may decline purchases as a result.

The move will be an overall positive one for banks, in their ever more complex battle with fraudsters. But also adds some unwanted pain and complexity for users.

Kat Cloud, UK Policy Lead at Plaid, says the introduction of SCA checks for merchants for online card payments should help to better protect consumers from fraud. 

Clearly, though, she adds, the changes will also “cause short-term disruption to many customers” as they face new frictions when paying online.   

“Enabling easier payments is central to the success of the digital economy. Merchants that offer poor payment experiences to customers are in real danger of losing out on potential business,” she said. 

“Merchants that are not already equipped to handle two-factor authentication now need to adapt quickly. One option is to continue relying on customer card payments to run their business. But we also expect a faster adoption of open banking payments as a result - especially as they have already adapted to Strong Customer Authentication requirements. Allowing customers to pay directly instead of through a third-party can even bring cost savings to businesses, all while offering a more streamlined payment experience to buyers,” she added.

Paying by card is about to “get a lot more painful” thanks to the implementation of the new Strong Customer Authentication rules,” says Siamac Rezaiezadeh, Director of Product Marketing at GoCardless.

“Consumers making online payments will now be faced with interruptions to their payment journey and asked to take extra steps to verify their identity. These added layers of security are yet another example of the card industry adding inconvenient bolt-ons to compensate for the fact that cards were not designed for an online world,” he added.

Open banking payments, he agrees, may benefit as a result. 

“We’re already seeing a surging interest in payment methods that can solve for this imminent headache. Payments that come directly from a customer’s bank account, such as those powered by open banking, are SCA-compliant by design because authentication is built seamlessly into the checkout flow. This offers the streamlined online payment experience people have come to expect, and limits conversion and churn risk for businesses,” Rezaiezadeh said.

Investment into digital checkouts and e-wallets is now a core focus for companies, while consumers increasingly don’t like tricky payment experiences when shopping online. 

Nearly two thirds (62 per cent) of consumers would avoid merchants that offer a ‘poor’ payment experience, according to a recent survey.

A further one in five (22 per cent) would even avoid the merchant even if they needed their goods or services and less than a tenth (6 per cent) of UK adults would continue to shop as normal with a company if they experience a poor payment experience with them.

Four in five (81 per cent) said it’s also important for companies to offer a wide variety of payment options, including buy now pay later, or digital payments. 

The numbers come from an Opinium survey of 2,000 UK consumers between the 8th and 11th of February 2022, sponsored by Plaid.

 Over a third of people (36 per cent) cited methods that required customers to enter in their personal financial information - such as the long card number on a credit or debit card -  as a reason they would abandon a purchase from an online business. Another third (30 per cent) would abandon the purchase due to overly complex identity checks or verifications. 

“The growth of e-commerce has been stratospheric in the last couple of years, says Keith Grose, Head of Plaid UK, owing to consumer demand moving online “almost overnight”, with companies having to move swiftly to adapt to completely new trading conditions.

“This has brought a new set of challenges for retailers as consumer expectations rise too. Many merchants will know well that consumers want their payment experience to be as smooth as the rest of the online shopping experience. How people pay is no longer an afterthought, but a crucial part of the customer experience,” he said. 

“As businesses look to bounce back from the turmoil of the past two years, and support the economic recovery by doing so, they cannot afford to lose customers who’ve seen the benefit of digital innovation and a better way of paying,” he added. 

What are Strong Customer Authentication rules? 

The new rules mean when you pay for something with a card online you have to provide two out of these three things: information known only to you such as passwords, PINs or secret answers. Something only you the payer have, such as a mobile phone and something biometric such as a fingerprint, facial recognition, voice patterns, or DNA signature.

This occurs when accessing a payment account online or making an electronic payment transaction.

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