Strong Customer Authentication
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SCA Proves Detrimental to UK Businesses as Payment Declines Increase by Over a Third

UK businesses are experiencing an increase in payment decline rates following the implementation of strong customer authentication (SCA) earlier this year.

Implemented on 14 March after various setbacks, SCA is a form of regulation that primarily centres around consumer safety within e-commerce.

The system requires merchants to authenticate the identity of their consumers for all online transactions over the value of £25.

Since coming into force, customers are now required to verify who they are, for example, through their banking app or a one-time passcode via text or phone call, when making purchases online.

According to the recent research of Nuapay, the open banking branch of EML Payments, SCA has caused, on average, 37 per cent of payments to be declined, with 99 per cent of merchants in the UK experiencing at least a five per cent rise in rates of decline.

With the convenience of paytech appearing to crack, a third of businesses identified how the regulations had had a negative impact on the customer experience.

Around a third of the 750 payment decision-makers surveyed said their businesses’ payment fraud rate had increased versus two years ago at the beginning of the pandemic. Alarmingly, however, when asked if current payments security measures such as the second payment services directive (PSD2) and SCA were fit for purpose, 62 per cent felt that there was still room for improvement and 29 per cent believed regulations needed to go further to prevent fraud.

As the cost to business continues to compound, the data emphasises the importance of merchants acting now to review the technology used at checkout. Open banking payments offer a secure, efficient and cost-effective alternative to traditional cards.

Brian Hanrahan, CEO, EML's Nuapay Business Division
Brian Hanrahan

“As the research shows, SCA regulations have been far from the silver bullet that regulators might have hoped, creating serious checkout friction and frustration for consumers and lost sales for businesses,” the company’s CEO Brian Hanrahan explained.

”Open banking payments offer a clear solution because they’ve been designed since day one to comply with SCA while giving a great mobile-native user experience. They are inherently far more secure than other forms of payment as they don’t require a customer to share their card details with the merchant.”

The new research shows that security and data protection concerns are set to continue. A third of merchants agreed that payment security would be their biggest challenge over the next 18 months, and a further 29 per cent said data protection would be a primary concern.

Author

  • Tyler is a fintech journalist with specific interests in online banking and emerging AI technologies. He began his career writing with a plethora of national and international publications.

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