2022 saw the biggest change to payments in 16 years: mandatory Strong Customer Authentication (SCA). This new regulation, which came into effect on 14 March, adds a new step in the checkout process – two-factor authentication, whereby a cardholder is required to verify their identity with a one-time passcode sent by SMS, a response code generated from a bank-issued card reader or a through approval via their mobile banking app.
Whilst SCA is designed to tackle the £376million of online fraud committed in the UK each year, its implementation poses significant challenges for e-commerce businesses. Research from Barclaycard Payments showed that 37 per cent of customers headed to another retailer if they were experiencing friction at the check-out, while the same proportion said they’re unlikely to shop with a merchant in the future if their payment gets rejected without explanation.
To help businesses reduce the risk of abandoned baskets and help them become compliant with SCA without adding additional layers of friction, Barclaycard Payments launched Barclaycard Transact. This sophisticated payments technology is designed to improve payment acceptance rates by streamlining the checkout process.
Barclaycard Transact performs a real-time fraud check on every transaction to identify low-risk transactions that qualify for SCA exemptions. This helps minimise fraud and improves customers’ shopping experience.
David Jeffrey is head of fraud and security product at Barclaycard Payments. David has 20 years within the payments industry across both issuing and acquiring businesses including American Express and Barclaycard Payments.
Jeffrey has held a wide variety of commercial and product leadership roles which include head of acquiring product, head of e-commerce and alternate payments and most recently director of intelligent payments and risk solutions.
His current role focuses on the development of leading-edge products and services which simplify the acceptance of payments, aimed at offering maximum protection to merchants whilst also maximising transaction acceptance.
At the centre of our latest ‘Behind the Idea’ feature, here Jeffrey chats with The Fintech Times about SCA, its benefits and limitations, the evolving e-commerce market in the UK and how the company’s paytech is helping customers to get the most out of payment security:
What has been the traditional company response to financial technology innovations nationally?
Barclays has a rich history of leading innovation in financial technology. We process £1 in every £3 spent in the UK on credit and debit cards through our systems and are the only bank-owned acquirer in the UK.
Our heritage and history in the sector include processing the first card payment in the UK, introducing chip and PIN, launching contactless (and enabling roll-out across the TfL network), to today, processing trillions of e-commerce transactions.
We are continuously modernising our systems for commerce in the UK. During the pandemic, we pioneered the increase in the contactless limit to £45 and again to £100 in October 2021.
How has this changed over the past few years?
Covid-19 reset consumer expectations and accelerated several payments trends. Digital is here to stay, and businesses have adapted their business strategy. The shift to digital transactions has placed importance on the need for payments businesses to differentiate their service offerings. Merchants expect payment partners to be able to provide exceptional experiences connecting them across the wider ecosystem simply and seamlessly.
We are increasingly hearing merchants call for one consolidated provider to serve all of their needs across merchant acquiring, gateway services and issuing. That has informed the products and services we develop. Businesses want industry-leading insight, consultancy services and a deep understanding of complex payments regulation.
However, with the breadth of the bank, we can be the sole financial partner of any business in the UK, providing them with all the services and products they need, from a bank account, right through accountancy software.
Is there anything that has created a culture of change inside the company?
Barclays has a rich heritage of innovation across its 330-year history. Our solutions are underpinned by our unrivalled expertise, scale, security and support that comes from being part of an established regulated bank. We are leveraging this history and culture of innovation to modernise and simplify payments, and are continuing to innovate as consumer needs adapt.
What fintech ideas have been implemented?
The Barclaycard Transact platform is part of our next-generation commerce suite, which has been developed with consumer convenience in mind. Solutions such as Transact allow merchants to simplify the SCA process, therefore increasing consumer satisfaction and, importantly, ensuring the regulation is met.
At Barclaycard Payments, we offer a range of products and services for acquiring and issuing. One example from our issuing suite is Precisionpay Go, a virtual corporate card that enables employees to pay for ad-hoc business expenses.
With the addition of Apple Pay, Precisionpay Go allows employees to make in-store payments – all without the need for a physical card. Available in 102 countries, Precisionpay Go removes the time taken to fill in expense forms and centralises the process for finance teams.
What benefits have these brought?
Barclaycard Transact helps merchants comply with the SCA regulation without adding additional layers of friction to the check-out. By leveraging exemptions in the regulation through highly sophisticated fraud checks, the technology can be added to an existing payment gateway, enabling merchants to reduce the risk of abandoned baskets; which in the month of February 2022, exceeded £100million, according to our data.
Our own data also shows that 93 per cent of transactions, which were processed through the Barclaycard Transact platform in February this year, were approved on the first attempt, compared to just 69 per cent of transactions going through less secure channels. Transact also provides merchants with valuable analytics and data to show where dropouts occur. This is important as our research shows that 30 per cent of basket abandonment occurs due to friction caused by the two-factor authentication process.
Do you see any other industry challenges on the horizon?
Buy-now-pay-later (BNPL) is growing in popularity but there is a lack of consistent regulation around these products, with many consumers taking on more debt than they can afford to repay. Unfortunately, there are many unregulated BNPL products on the market, and these providers rarely carry out hard credit checks, sometimes leading to higher default rates.
Another issue is the fact that many unregulated providers don’t currently report lending to the credit reference agencies at the point of purchase. This creates a lack of transparency, with customers potentially offered multiple loans by different BNPL providers, with each lender unaware of the customer’s mounting monthly repayments.
To protect consumers and ensure minimum standards exist across the sector, we welcome the government’s announcement that they will be bringing in new rules to ensure that BNPL providers lend more responsibly. They have clearly recognised the risks associated with unregulated lending, and are taking steps to address them in order to better protect consumers.
For example, we are very much in agreement around the need for appropriate credit checks, controls on misleading advertising and that BNPL consumers should be able to escalate any complaints to the Financial Ombudsman Service (FOS).
Can these challenges be aided by fintech?
Encouragingly, the government intends to publish and consult on draft legislation on BNPL by the end of the year, with the new rules finally becoming enforced at some point in 2023/2024. However, while the industry waits for these new regulations to be confirmed and enforced, more consumers are being exposed to potential harm. Fintech companies that offer BNPL products can do their part by performing robust credit and affordability checks on each customer, to ensure that all loans are suitable and affordable.
