Navigating the New Fraud Landscape: Developing a Robust SCA Strategy for Merchants

by Amal Ahmed, Director, financial services and EMEA marketing. In the new era of ecommerce, propelled by the enforcement of Strong Customer Authentication (SCA), an uncertainty of the market, and an emphasis on global expansion, merchants can’t help but adapt to the changes. One of the most significant shifts is the integration of SCA. It’s a great way to guard off fraudulent attacks and provide customers with data protection, but it comes at a cost – a friction-infused customer journey. Signifyd’s survey has demonstrated that customers are touched by the changes. In fact, 36% of UK respondents have been unable to complete a transaction due to being asked to verify their identity. It’s needless to say that this adverse effect is hurting revenue. Thankfully, there are certain steps merchants can take to minimise the disruption of SCA and even capitalise on it. It all starts with developing a robust SCA strategy, and here is what you should consider. Understand out-of-scope transactions and exemptions SCA requires online customers to complete a two-step 3D Secure v2 authentication, in order to confirm the legitimacy of both the transactions and the shopper. Nevertheless, SCA provides a doorway for customers to trespass the authentication process through exempt transactions. If flagged correctly, such transactions will not be subject to the two-factor verification, facilitating a seamless checkout experience for your customers. Such transactions include:

• Out-of-scope transactions, including mail order or telephone order (MOTO) payments.
• Low value (<£25/€30) and low risk remote transactions – SCA will be required once the accumulated orders paid for by a single card without 2FA reaches a value of 100 EUR or more, or on every five transactions.
• Merchant-initiated transactions (MITs), such as recurring payments, subscriptions, and membership fees – SCA will be applied when the recurring payments are first set up but won’t affect future payments.
• One-leg-out (OLO) transactions – transactions where one of the parties involved is not based in a country where SCA applies.
• Trusted beneficiary – customers can add an individual to whom payments can be made without SCA authentication to a list. SCA will only be applied whenever a trusted beneficiary is created or amended.
• Transaction Risk Analysis (TRA) – this can be applied if the merchant and its bank have maintained a low fraud rate and the transaction meets certain value limits (below €500).

The key to allowing more exemptions is fraud protection PDS2 exemptions are a great way to reduce friction in the customer journey, approve more transactions, and increase your revenue. What determines whether more exemptions are allowed or not is the maintenance of a low fraud rate. To put things into perspective, if a merchant has a fraud rate below .01%, they will be able to clear the way for purchases under €500. As their fraud rate increases, the value of exempt transactions decreases. For example, a fraud rate of .06% and .13% retrospectively will allow a merchant to exempt purchases under €250 and under €100 retrospectively. That’s what Transaction Risk Analysis (TRA) is. Transaction Risk Analysis (TRA) also allows for fraudulent transactions to be caught early using risk intelligence from a commerce network. This provides an extra layer of protection, resulting in a higher authorisation rate and lower fraud rate. As you can see, maintaining a low fraud rate is necessary for merchants to secure exemptions and in return offer a top-notch customer experience. Building a strategic exemption and exclusion strategy starts with implementing the right fraud management tools. Such solutions will leverage machine-learning in order to sift through fraudulent transactions and approve more legitimate orders, in return facilitating an efficient payment pathway. The benefits of smart exemptions engines Seeking out exemptions is the first step to removing the need for SCA. To fully benefit from exemptions, merchants should implement smart exemptions engines. Such an engine uses historical and real-time transactional data to predict issuer behaviour. This analysis allows it to exempt as many transactions as possible from SCA and will allow you to maximise the number of transactions that are eligible for SCA exemption and send them through a frictionless checkout path, thus improving your authorisation rate. Developing a thorough understanding of SCA and how a lower fraud rate harnessed by a robust fraud solution and a smart exemption engine will help you build your SCA strategy. In return, you will reap the benefits of a higher authorisation rate, an improved customer experience, and increased revenue.