Last editedMay 20231 min read
No matter what product or service you are building, if it takes payments, you should consider open banking payments with SCA to help maximise conversion rates and greatly improve the customer journey experience. But first, it's crucial to understand what Strong Customer Authentication is, and how it's embedded in open banking.
Strong Customer Authentication (SCA) is a requirement introduced within the revised Payment Services Directive (PSD2) and is applied to customer-initiated online payments. It was implemented with the main goal of adding an extra layer of security and reducing fraud risk.
In short, SCA is essentially a form of two-factor authentication used to verify the end customer's identity. To successfully pass an SCA verification, the customer needs to provide two forms of validation out of three available categories:
Knowledge — a password, secret answer, passphrase, or PIN.
Possession — a smartphone, smartwatch, or token.
Inherence — customer's fingerprint or facial recognition.
Payment will be authorised after two items from these 3 categories are provided.
There are a few situations where exemptions can be applied, allowing the merchant to skip SCA verification. For more information on using SCA, we’ve produced a detailed guide to strong customer authentication.
SCA without open banking payments left merchants worried
Since SCA was implemented as a requirement for online transactions, merchants voiced their concerns on how it will impact conversion rates. Those worries were mostly based on the fact that this security process adds extra steps to the payment journey, which can cause customers to abandon before finishing the purchase.
The EuroCommerce and Ecommerce Europe associations wrote a letter to the European Banking Authority to highlight the difficulties retailers in Europe would face, including increasing abandonment rates and new-SCA-related fees imposed by card providers.
Open banking payments to the rescue
The adoption of open banking at the checkout stage can help merchants not only avoid declines in conversion rates but also improve them. Embarking on an easy-to-navigate and friction-free customer journey flow, allows customers to enjoy a simplified and safer experience.
With banks being required to follow specific customer experience guidelines, both customers and merchants can reap the benefits of a more fluid payment flow, which usually can be completed in 6 steps. When compared to the 10+ steps needed for SCA card journeys, implementing open banking payments becomes a no-brainer.