Strong customer authentication
Strong customer authentication (SCA) is a requirement of the European Union Revised Directive on Payment Services (PSD2) on payment service providers within the European Economic Area. The requirement ensures that electronic payments are performed with multi-factor authentication, to increase the security of electronic payments. Physical card transactions already commonly have what could be termed strong customer authentication in the EU (Chip and PIN), but this has not generally been true for Internet transactions across the EU prior to the implementation of the requirement, and many contactless card payments do not use a second authentication factor.
The SCA requirement came into force on 14 September 2019. However, with the approval of the European Banking Authority, several EEA countries have announced that their implementation will be temporarily delayed or phased, with a final deadline set for 31 December 2020.
Article 97(1) of the directive requires that payment service providers use strong customer authentication where a payer:
(a) accesses its payment account online;
(b) initiates an electronic payment transaction;
(c) carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.
Article 4(30) defines "strong customer authentication" itself (as multi-factor authentication):
an authentication based on the use of two or more elements categorised as knowledge (something only the user knows), possession (something only the user possesses) and inherence (something the user is) that are independent, in that the breach of one does not compromise the reliability of the others, and is designed in such a way as to protect the confidentiality of the authentication data
3-D Secure 2.0 can (but does not always) meet the requirements of SCA. 3-D Secure has implementations by Mastercard (Mastercard Identity Check) and Visa which are marketed as enabling SCA compliance.
E-commerce merchants must update the payment flows in their websites and apps to support authentication. If authentication is not supported, many payments will be declined once SCA is fully implemented.
On 31 January 2013, the European Central Bank (ECB) issued recommendations on Internet payment security, requiring strong customer authentication. The ECB's requirements are technologically neutral, in order to foster innovation and competition. The public submission process to the ECB identified three solutions to strong customer authentication, two of which are based on reliance authentication, and the other being the new variant of 3-D Secure which incorporates one-time passwords.
Subsequently, the European Commission drafted proposals for an updated Payment Services Directive including this requirement, which became PSD2. PSD2 strong customer authentication has been a legal requirement for electronic payments and credit cards since 14 September 2019.
In 2016, Visa criticised the proposal of making strong customer authentication mandatory, on the grounds that it could make online payments more difficult, and thus hurt sales at online retailers.
In 2019, consumer representation group Which? noted that many UK banks were implementing SCA by requiring a phone capable of receiving a text message or push notification. When surveyed, nearly one in five Which? members were concerned that they may be unable to make payments if there was no alternative, either due to poor reception or not owning a phone.
In 2020, an independent report conducted by consultancy firm CMSPI found that the potential disruption caused by strong customer authentication (excluding the United Kingdom) could be €108 billion in 2021.
- "Payment Services Directive (PSD2): Regulatory Technical Standards (RTS) enabling consumers to benefit from safer and more innovative electronic payments". European Commission. 2017-11-27. Retrieved 2019-04-17.
- "EBA provides clarity to market participants for the implementation of the technical standards on strong customer authentication and common and secure communication under the PSD2". European Banking Authority. 2018-06-13. Retrieved 2019-04-17.
- "EBA publishes an Opinion on the elements of strong customer authentication under PSD2". European Banking Authority. 21 June 2019. Archived from the original on 2019-12-30. Retrieved 2019-09-07.
- "FCA agrees plan for a phased implementation of Strong Customer Authentication". Financial Conduct Authority. 2019-08-13. Retrieved 2019-09-07.
- "Strong Customer Authentication (SCA) Enforcement Date". Stripe. 6 September 2019. Retrieved 2019-09-07.
- "Directive 2015/2366/EU". 25 November 2015.
on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC
- "Strong Customer Authentication and PSD2: How to adapt to new regulation in Europe" (PDF). Mastercard. 2018-08-17. Retrieved 2019-04-17.
- "Preparing for PSD2 SCA" (PDF). Visa. November 2018. Retrieved 2019-04-17.
- "Designing payment flows for SCA". Stripe. July 15, 2019. Retrieved 2019-09-07.
- "ECB: ECB releases final Recommendations for the security of internet payments and starts public consultation on payment account access services". Ecb.eu. Retrieved 2014-07-17.
- "ECB: Public consultation". Ecb.europa.eu. 2013-01-31. Retrieved 2014-07-17.
- https://newsroom.mastercard.com/eu/files/2018/02/Security-Matters-Authentication-under-PSD2-and-SCA-Mastercard-White-Paper.pdf[bare URL PDF]
- Leyden, Josh (2016-11-27). "Visa cries foul over Euro regulator's stronger authentication demands". The Register. Retrieved 2019-04-17.
- "New online security checks exclude people without mobile phones or decent signal". Which?. Retrieved 24 June 2021.
- "News SCA for PSD2 could cost merchants more than EUR 100 bln in 2021". The Paypers. Retrieved 24 September 2020.
- "Security and Risk Mitigation Measures for Electronic Payment Transactions". Reserve Bank of India. Archived from the original on 2013-03-04.
- "ACCC Releases Draft Determination Against Mandated Use Of 3D [sic] Secure For Online Payments". 23 May 2016. Retrieved 2019-09-07.