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 reduce fraud risk.
In a very summarised way, 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.
Only after two items from these 3 categories were provided, the payment will be authorised.
There are a few situations where exemptions can be applied, allowing the merchant to skip SCA verification. If you're interested in learning about SCA more in-depth, here you have everything you need to know.
SCA without open banking payments left merchants worried
Since the implementation of SCA as a requirement for online transactions, merchants voiced a big concern 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 even wrote a letter to the European Banking Authority to highlight the difficulties retailers in Europe will 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 checkout stage can help merchants to not only avoid declines in conversion rates, but also to improve them. By creating a customer journey flow without friction points and easy to navigate, customers will enjoy a simplified and safe experience.
There is no secret on why open banking payments can achieve this promises with ease, since it was designed to be compliant with PSD2 and SCA from the beginning.
With banks being required to follow specific costumer 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 comparing to the 10+ steps needed for SCA card journeys, implementing open banking payments becomes a no-brainer.