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September 27th 2022

Don’t Lose Sales to SCA This Christmas

With European merchants losing an estimated €40.8 billion in 2021 to false declines and 51% of consumers planning to buy fewer holiday gifts this year amid inflationary pressures², every purchase counts – and it’s vital merchants act now to ensure their online checkout isn’t a barrier to much-needed holiday sales. But what exactly should they act on?

For the last few years, Strong Customer Authentication has been one of the first things to come to mind.

Finally, the implementation of SCA throughout Europe was completed this March as new regulation rolled out across the UK – but with only 8% of major German retailers utilising SCA exemptions and new 3DS fees in play³, merchants who fought to reach compliance may be revisiting their solution now to find millions being left on the table.

What is SCA?

Strong Customer Authentication is a regulation from the European Commission designed to improve the security around card payments and therefore to reduce fraud in online retail. Identification must be completed through at least two of the regulation’s three named fields: inherence, which could include fingerprint or face recognition; knowledge, which is typically a PIN or password; and possession, for example by paying on a known device or scanning a card.⁴

SCA saw a staggered rollout beginning in 2020, and is now fully implemented across Europe despite numerous concerns from the merchant community regarding its efficacy and significant impact on the consumer experience.

So what’s the problem?

Increased checkout friction

Strict identification and verification requirements have significantly increased friction, leading to high drop-out and failure rates⁵ and leaving merchants struggling to retain previously loyal customers – and their revenue.

As online retail continues to diversify, for many merchants their closest competitors are now only the click of a button away, and retaining consumer interest is increasingly vital. And, as 68% of consumers now say they would abandon a transaction and 58% would not shop with a merchant again following a negative online experience⁶, this is becoming increasingly difficult to do. It’s clear, then, that negative friction or frustration caused by time-consuming verification is likely to have a significant impact on merchants’ revenue.

Increased false declines

In addition to higher consumer drop-out as checkout friction increases, SCA has also increased back-end friction, with some transactions failing to measure up to requirements or being incorrectly flagged for exemption. As a result, an estimated €40.8 billion was lost to false declines across Europe in 2021, as seen in Figure 1.

Estimated value lost to false declines across Europe and in selected key markets⁷

Fraud rates remain high

Despite fraud reduction being one of the primary aims of SCA, we also haven’t seen evidence that  fraud rates for the international schemes have been significantly reduced – so many merchants may be seeing net negative effects.⁸

Changes to merchant fees

In addition to these issues, in March 2022 additional scheme fees for 3DS transactions were restructured from an €.022 per-transaction fee to a percentage cap varying by region and additional fees have been added for CCV and AVS checks⁹, transforming the business case for many merchants’ strategies.

Taking back control – and revenue

The new frontier for optimising your ecommerce payments is a strong SCA exemption strategy.

Thankfully, there are exemptions set out in PSD2 for cases in which there is no obligation to perform SCA on a transaction due to payment channel, type, risk, or value. Many merchants scrambled to meet SCA requirements in the initial phases of implementation, meaning these opportunities will likely have been missed out on – as merchants need to actively choose to utilise these exemptions. With most merchants now fully compliant, it’s time for retailers to begin optimizing their SCA strategies.

Which exemptions are retailers missing out on?

Among the potential exemption opportunities for merchants are recurring payments, whereby only the first transaction must be fully authorized in order to obtain an SCA indicator and exempt subsequent transactions. Transactions under €30 can also be exempted.¹⁰ One key opportunity that many are leaving on the table, though, is Transaction Risk Analysis, which allows exemptions for ‘low-risk’ transactions. This typically describes relatively low value transactions (the legal limit is €500) carried out through an acquirer with a sufficiently low fraud risk – meaning that for many retailers, the potential application of a strong TRA strategy is extremely wide-reaching.

The impact of an optimal strategy

Our analysis has shown that the revenue uplift resulting from a strong exemption strategy is often significant.

All exemption strategies are not created equal, however: While the legal upper threshold for TRA exemptions is €500, most acquirers won’t be able to offer this unless they have an extremely low fraud rate, with €250 or even €100 upper limits more usual for many acquirers.¹¹ We’ve helped  merchants boost revenues by eight figures a year by implementing a strong SCA exemption strategy – making them a crucial part of any retailer’s preparation for the holiday season. 

How can I make sure I don’t lose out?

The landscape of SCA exemptions and post-checkout is extremely complex, and no two solutions will be the same – it’s all about what works best for your business. CMSPI uses a data-driven approach to navigate the complex waters of SCA and consumer payments and uncover the best post-checkout strategy for our merchant partners. With online spending here to stay, freezes imposed by many payments firms over the holidays, and margins squeezed by skyrocketing inflation, it’s vital that merchants act now on the challenges posed by SCA.


  1. CMSPI Estimates and Analysis


  3. EHI Consumer Payments Survey 2022




  7. CMSPI Estimates and Analysis

  8. CMSPI Estimates and Analysis



  11. CMSPI Analysis