Strong Customer Authentication (SCA)

Strong Customer Authentication (SCA) is a regulatory requirement under the Revised Payment Services Directive (PSD2) that aims to enhance the security of electronic payments and protect customers from fraud. It is a method of authentication that ensures the identity of the customer during online transactions, particularly in the European Union (EU) and European Economic Area (EEA).

SCA requires the use of at least two independent factors to authenticate the customer’s identity. These factors fall into three categories: knowledge, possession, and inherence. Knowledge factors are something only the customer knows, such as a password or PIN. Possession factors are something only the customer possesses, like a mobile device or a smart card. Inherence factors are something inherent to the customer, such as a fingerprint or facial recognition.

The purpose of SCA is to reduce the risk of unauthorized access to a customer’s account and mitigate the potential for fraudulent transactions. By implementing SCA, financial institutions and payment service providers (PSPs) can ensure that customers are who they claim to be before authorizing any payment or providing access to sensitive information.

SCA applies to a wide range of electronic payment transactions, including online purchases, fund transfers, and accessing online banking services. However, there are some exemptions to SCA, such as low-value transactions, recurring payments of fixed amounts, and transactions deemed low-risk by the payment service provider.

The introduction of SCA has significant implications for businesses operating in the EU and EEA. Merchants and service providers must ensure their payment systems comply with SCA requirements to avoid disruptions in customer transactions and potential penalties for non-compliance.

While SCA enhances security, it may also introduce some challenges for customers and businesses. The additional steps required for authentication may lead to longer transaction times and potential friction in the user experience. However, the benefits of increased security and reduced fraud risk outweigh these temporary inconveniences.

To comply with the SCA requirements, financial institutions and PSPs must invest in robust authentication mechanisms and ensure seamless integration with their existing payment systems. This may involve implementing technologies such as two-factor authentication (2FA), biometrics, or secure tokenization.

In conclusion, Strong Customer Authentication (SCA) is a regulatory measure that aims to strengthen the security of electronic payments and protect customers from fraud. By requiring at least two independent factors for authentication, SCA ensures that customers’ identities are verified before authorizing transactions. While it introduces some challenges, SCA ultimately enhances the security of online transactions and fosters trust between customers, financial institutions, and payment service providers.