Strong Customer Authentication (SCA) is a regulatory requirement aimed at reducing fraud and enhancing the security of electronic payments. It mandates the use of multiple factors to verify a customer’s identity before approving a transaction.
Key Points:
- Purpose: SCA is designed to make electronic payments more secure and to protect consumers from fraud. It is a key component of the European Union’s Revised Payment Services Directive (PSD2).
- Authentication Factors: SCA requires the use of at least two out of three independent authentication factors:
- Something the customer knows: Examples include passwords or PINs.
- Something the customer has: Examples include a mobile phone, smart card, or hardware token.
- Something the customer is: Examples include biometric data such as fingerprints, facial recognition, or iris scans.
- Applicability: SCA applies to electronic transactions, including online payments, contactless payments, and any remote transactions that involve a significant risk of fraud.
- Exemptions: Certain transactions may be exempt from SCA under specific conditions:
- Low-Value Transactions: Payments below a certain threshold (e.g., €30 in the EU) may be exempt.
- Recurring Transactions: Subsequent payments in a series of recurring transactions may be exempt after the initial setup.
- Trusted Beneficiaries: Payments to trusted recipients pre-approved by the customer may be exempt.
- Low-Risk Transactions: Transactions assessed as low risk by the payment service provider’s fraud detection mechanisms may be exempt.
- Impact on Payment Processors: Payment service providers and merchants must implement SCA-compliant systems to authenticate transactions. This often involves upgrading existing payment infrastructure and integrating advanced authentication technologies.
- Implementation: SCA typically involves multi-factor authentication (MFA) methods such as one-time passwords (OTPs) sent to the customer’s mobile device, biometric verification, and secure token-based authentication.
- Regulatory Framework: SCA is a key requirement under the European Union’s PSD2, which came into effect on January 13, 2018. It aims to increase competition, innovation, and security in the payments industry across the EU.
- Challenges: Implementing SCA can pose challenges such as balancing security with user convenience, ensuring compliance across different jurisdictions, and updating legacy systems to support new authentication methods.