The FCA has recently announced a new, six-month deadline extension for Strong Customer Authentication (SCA) implementation in response to the pandemic. This move recognises the ongoing challenges businesses face to be ready by the previous 14 September 2021 deadline, and aims to ensure minimal disruption to merchants and consumers. The new deadline means the FCA expects full SCA compliance for e-commerce transactions by 14 March 2022.
Siamac Rezaiezadeh, Director of Product Marketing at GoCardless, shares his thoughts on what this means and why this is the perfect time for merchants to re-evaluate their payment strategy:
The deadline extension will surely be a relief to many businesses who have had a lot on their minds over the past year. Merchants now have much-needed breathing room to establish the best payment strategy that supports SCA, and to communicate any upcoming changes to their customers. That is very positive.
SCA is not something that businesses can afford to get wrong. There are, after all, real revenue implications at stake. In 2020 we surveyed 1,900 C-level decision makers and found that 75% of businesses globally had already implemented SCA and, of those, 56% reported a decrease in conversion as a result. So, while progress was strong, there was a clear and worrying cost.
Reframing what must be done
As they take advantage of the FCA’s deadline extension, merchants may want to reframe their approach to SCA; for example, thinking of how to reach the end objective in different ways. A large proportion of merchants may not realise there’s a world beyond card payments that offer the same level of fraud protection that SCA is driving towards – but without the need to add an extra step into the payment flow. One example is bank-to-bank payments such as bank debit (direct debit in the UK, ACH debit in the US). These are classified as ‘merchant-initiated payments’ and out of scope of SCA.
Beyond providing strong protections for the payer, bank-to-bank payments are preferred in many parts of the world. GoCardless research indicates that bank debit is the favoured way to pay by consumers in the UK, France and Germany for household bills, digital subscriptions, traditional subscriptions and instalments. The picture is similar for B2B payments and even in the US, where the corporate card is the most likely way to pay for digital subscriptions and invoices, chosen by 54% and 52% of businesses, respectively, the second most preferred choice for each is bank debit (chosen by 38% and 42% of businesses for each use case).
Higher preference leads to higher conversion. And bank-to-bank payments bring other benefits to merchants including minimising churn and bad debt while maximising cash flow – all at a cost lower than cards. Taken together, merchants that start to look at bank-to-bank payments may realise that – even without considering SCA – it’s a more suitable option for their business model.
There are also new payer-initiated payment options that are SCA compliant by design, such as open banking payments. When the consumer or business initiates the payment, they will be asked to log into their online banking platform to complete the transaction, providing authentication with just a few clicks. By working with the right payment partner, the process can be incredibly seamless.
Getting ready to strike the right balance
The previous deadline extension gave businesses the time to understand what they need to do to implement SCA. However, leading up to 14 March 2022, it’s essential that merchants don’t sit back and relax – but instead look at it as extra time to perfect their payment strategy. Now more than ever, merchants cannot afford to make the mistake of delaying or rushing SCA preparations – especially as many are getting back on their feet post-pandemic.
They should be using this time to look towards adopting payment methods that both suit their customers’ needs and deliver the inbuilt protection that SCA is solving for. The future is maximum security and minimal friction, and any business that takes an open mind to achieving this can achieve the right balance.