SCA Directive is yet another new EU directive that will impact the world of online commerce in ways that are hard to predict. It is a directive designed in order to increase transaction security and prevent fraud, but the effects, as always, can be somewhat negative, especially towards the retailers that have been somewhat idle in terms of following the latest developments in the industry.
What is SCA?
SCA (Strong Customer Authentication) Directive defines the security protocols needed for the online transaction to take place. In plain words, this is a directive that enforces stronger authentication of the transaction in order to prevent fraud and enhance online transaction security.
The reasons for introducing this directive are quite obvious. Online transactions are predominantly created through mobile devices in the past few years, and there was an obvious need to ramp up security by introducing new authentication tools. It is quite necessary, given the fact that the shoppers take mobile devices with them, and those can be easily stolen or lost. If the payment processing data are stored in the phone, this can lead to a whole myriad of trouble, from void orders to chargebacks.
The second reason for this is the emergence of fraudulent transactions that are not related to lost or stolen mobile devices. There has been an increase of these transactions mostly created through the leaked databases of payment details of active online customers.
These issues usually happen when the payment methods include payment cards or bank transfers.
What will be the impact?
The most obvious impact of this directive will be the need for introducing the 3DS2 (3D Secure 2). It is a new authentication protocol that is much stronger than the previous one, and the merchants will face the need to implement it into their online stores in order to process the transactions in accordance with the SCA.
Not all online businesses will be affected equally though. The subscription-based websites will have to enhance their transaction security only for the 1st transaction, but the retailers and all other online businesses that operate on customer-initiated transactions will have to apply SCA rules every time the transaction happens.
Long term impact should be rather positive. Application of this new directive will lead to more security when shopping online, which will definitely reduce fraudulent transactions, as well as the transactions that end in chargebacks.
Initially, there could be some trouble with implementing a new authentication method, but this should not represent a real problem to the retailers who have been following the latest technology trends in the industry.