Don’t Lose Sales to SCA This Christmas

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.

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.

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. 

Sources:

1. CMSPI Estimates and Analysis

2. https://www.salesforce.com/uk/blog/2022/07/holiday-shopping-predictions.html

3. EHI Consumer Payments Survey 2022

4. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R0389&from=EN

5. https://cmspi.com/eur/en/resources/content/strong-customer-authentication-sca-impact-assessment-august-2021/

6. https://www.businesswire.com/news/home/20220706005296/en/Survey-Finds-UK-Shoppers-are-Frustrated-with-SCA-and-Merchants-are-Missing-Out

7. CMSPI Estimates and Analysis

8. CMSPI Estimates and Analysis

9. https://cmspi.com/eur/en/resources/content/the-new-ecommerce-fees-why-european-merchants-need-to-act/

10. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018R0389&from=EN

11. CMSPI Analysis