EU e-commerce set to lose €57bn due to SCA

Europe stands to lose €57 billion in economic activity in the first 12 months after Secure Customer Authentication (SCA) takes effect on 14 September.

This is according to surveys conducted for payments infrastructure company Stripe by 451 Research with 500 qualified payment professionals at online businesses and 1,000 consumers in the UK, France, Germany, the Netherlands and Spain.

With just over three months to go before the EU-wide rules are enforced, preparedness remains remarkably low: 40 per cent of businesses aware of SCA say they feel prepared to address its requirements.

The research suggested that SCA will disproportionately impact small businesses: three in five businesses with under 100 employees are either unfamiliar with SCA, don’t plan on being compliant before September, or are unsure when they will be ready. This is in contrast with larger merchants of more than 5,000 employees, where only 1 in 25 payment professionals are unaware.

In order to minimize the transactions for which SCA will be required, a set of exemptions can be made which allow, for example, recurring payments or small purchases (under €30) to be approved without extra layers of friction.

However, Stripe stated that businesses are dramatically underestimating the complexity and resource burden of managing and optimising these exemptions, with half of respondents planning to handle management of exemptions completely in-house.

The challenge is that exemptions are complex to administer, especially for smaller businesses, and require visibility on how card networks and banks will apply exemptions across Europe. For instance, purchases under €30 are exempt from SCA, but SCA will be requested by the customer’s bank once five transactions below €30 have been made or the total value of those transactions reaches €100.

The most recent version of 3D Secure, which to date has been known by consumers under names such as Verified by Visa and Mastercard Secure Code, is emerging as a popular SCA-compliant way to accept payments online. However, the survey showed one in four online businesses are not yet familiar with it.

“SCA will make or break internet retailers – the urgency to get ready for it cannot be overstated,” commented Guillaume Princen, head of continental Europe at Stripe.

Just 47 per cent of European consumers feel today’s online checkout process is ‘very easy’ and the most attractive customers for online businesses often abandon purchases when encountering a poor checkout experience. For example, 74 per cent of Generation Z shoppers have abandoned an online purchase in the past six months due to a bad checkout experience.

SCA is likely to make matters worse, as 73 per cent of shoppers are unaware of new authentication requirements coming to the online checkout experience in September.

When asked what they believe to be the best authentication experience, 54 per cent of consumers said one-time passcodes, while 26 per cent said fingerprint recognition. Despite this apparent low preference for fingerprint recognition, 43 per cent still believe that it is “most secure”.

However, separate research commissioned by Nuapay, found that 89 per cent of airline, supermarket and subscription economy merchants are primed for Open Banking - which SCA is a part of - with only 11 per cent stating that they have not yet assessed the impact it will have.

The survey also revealed that merchants had a good understanding of the full range of benefits unlocked by the second Payment Services Directive (PSD2), with reduction in transaction fees, instant receipt of payments, improved access to loans and reduced security risk ranked in the top four.

Merchants not only understand the advantages for themselves, but also have a strong grasp of the knock-on benefits to their end customers; chief among these were greater control (68 per cent) and improved customer experience (51 per cent).

Huw Davies, premium API director at the Open Banking Implementation Entity, said: “We expect to see momentum ramp up considerably in the second half of this year, with some really exciting services and partnerships hitting the market, ultimately helping people move, manage and make more of their money.”

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