What is Strong Customer Authentication?

Strong Customer Authentication (SCA) is a European regulatory requirement aimed at making online payments more secure. It is part of the Payment Services Directive 2 (PSD2), a set of regulations for payment services in the European Economic Area (EEA). SCA is designed to reduce fraud and enhance the security of electronic transactions.

SCA requires that when customers make online payments or access their payment accounts, they must provide at least two of the following three authentication factors:

1. Something the customer knows: This could be a password, PIN, or other knowledge-based information.
   
   
2. Something the customer has: This includes a physical item, like a smart card, token, or mobile device used for generating one-time passwords or receiving authentication codes.
   
   
3. Something the customer is: This factor involves biometric data, such as fingerprint or facial recognition.

By requiring two of these factors, SCA aims to ensure that the person making the payment or accessing their account is the legitimate account holder, thereby reducing the risk of fraudulent transactions.

SCA applies to various online card transactions, including:

• Card-not-present transactions: Payments made online where the card is not physically present, such as e-commerce purchases.
• Contactless payments: Certain high-value contactless payments may require SCA.
• Electronic wallet transactions: Payments made through mobile wallets or digital payment apps.

Exemptions and exceptions exist for low-value transactions, recurring payments, and specific situations to prevent excessive friction in the payment process while maintaining security.

Businesses and payment service providers must implement the necessary technical solutions to comply with SCA, and customers may notice additional authentication steps when making online payments in the EEA to meet these requirements. SCA is intended to enhance security and reduce fraud, providing consumers with greater confidence in online transactions.

In what instances is Strong Customer Authentication Required? 

Strong Customer Authentication (SCA) is required for certain online payment transactions within the European Economic Area (EEA). It aims to enhance the security of electronic payments by requiring customers to provide two or more authentication factors. Here are some key instances when SCA is typically required:

1. Card-Not-Present Transactions: SCA is most commonly associated with online transactions where the physical card is not present. This includes e-commerce purchases, where customers enter card details on a website, as well as mail order and telephone order (MOTO) transactions. For these scenarios, SCA is generally required to confirm the identity of the cardholder.
   
   
2. Electronic Wallets: Payments made through digital wallets or mobile payment apps, such as Apple Pay, Google Pay, or Samsung Pay, are also subject to SCA requirements.
   
   
3. Contactless Payments: In some cases, SCA may be required for contactless payments. The specific requirements can vary based on factors like the transaction amount and the cumulative value of contactless transactions since the last SCA.
   
   
4. Remote Account Access: SCA is also required when customers access their online banking or payment accounts remotely, such as when logging in to check balances or initiate transactions.

However, there are some exemptions and exceptions to SCA requirements, which include:

• Low-Value Transactions: As defined by regulatory authorities, SCA is not always required for low-value transactions. These thresholds may vary between countries.
  
  
• Recurring Payments: SCA is not needed for recurring transactions of a fixed or known amount, such as subscriptions or regular bill payments. However, the initial setup of the recurring payment may require SCA.
  
  
• Merchant Whitelisting: Customers can whitelist specific merchants, meaning they don't need to go through SCA for future transactions with those merchants. This helps to reduce friction for trusted and frequently used services.
  
  
• Corporate Payments: Certain business-to-business (B2B) transactions may be exempt from SCA if both the payer and payee are businesses rather than consumers.

It's essential for businesses and payment service providers to be aware of SCA requirements and implement the necessary authentication mechanisms to ensure compliance. The specific rules and thresholds related to SCA may evolve over time, so it's crucial to stay updated with the latest regulatory guidance to comply with these standards.

How does Electronic Identity Verification help with Strong Customer Authentication?

Electronic Identity Verification (eIDV) plays a significant role in supporting Strong Customer Authentication (SCA) by providing a streamlined and secure way to verify a customer's identity online. SCA requires at least two authentication factors and one of these factors often involves something the customer "knows." eIDV helps fulfil this requirement by verifying that the customer possesses specific personal information or credentials. Here's how eIDV contributes to SCA:

1. Identity Verification: eIDV services verify the customer's identity by checking their personal information against various data sources and records, such as government-issued IDs, credit reports, and other databases. This helps ensure that the person initiating the transaction is who they claim to be.
   
   
2. Knowledge-Based Authentication (KBA): eIDV solutions often use KBA to verify something the customer knows. Customers may be asked to answer questions based on their personal history, such as previous addresses, financial history, or other details only they should know. This adds an extra layer of security to the authentication process.
   
   
3. Document Verification: eIDV may include document verification, where customers are asked to provide images of their identification documents (e.g., passport, driver's license) for comparison. This not only verifies the customer's identity but also checks the authenticity of the documents.
   
   
4. Biometric Authentication: Some eIDV services offer biometric authentication methods, such as facial recognition or fingerprint scanning, as one of the authentication factors. Biometrics are something the customer "is," fulfilling the second SCA factor.
   
   
5. Behavioural Analysis: Advanced eIDV systems may analyse user behaviour, such as typing patterns or device-specific attributes, to help verify the authenticity of the user.

By integrating eIDV into the SCA process, businesses can meet the regulatory requirements for strong customer authentication while also enhancing the user experience. It allows for a more seamless and secure online payment or account access process. Here are some benefits of eIDV in the context of SCA:

• Reduced Friction: eIDV can help reduce friction in the authentication process. Customers don't need to remember complex passwords or go through time-consuming authentication steps. This can lead to a more user-friendly experience.
  
  
• Enhanced Security: eIDV adds an additional layer of security by ensuring that only authorised users can access their accounts or make payments. This helps protect against fraud and unauthorised transactions.
  
  
• Compliance: Implementing eIDV can help businesses comply with SCA requirements, ensuring that they meet regulatory standards for online transactions.
  
  
• Faster Transactions: The use of eIDV can speed up the authentication process, allowing customers to complete their transactions more quickly.

Overall, eIDV is a valuable tool for businesses and financial institutions to ensure that they meet the SCA requirements while simultaneously providing a secure and convenient online experience for their customers.

What is the future of Strong Customer Authentication methods?

The future of Strong Customer Authentication (SCA) methods is likely to be shaped by advancements in technology, changes in regulatory requirements, and evolving consumer expectations. Here are some trends and developments that can be expected in the future of SCA:

1. Biometrics Dominance: Biometric authentication methods, such as fingerprint recognition, facial recognition, and iris scans, are likely to play an increasingly significant role in SCA. They offer a high level of security and user convenience, making them a preferred choice for many applications.
   
   
2. Continuous Authentication: SCA may evolve to include continuous authentication, where the user's identity is verified throughout a session or transaction rather than just during the initial login. This can help detect and prevent unauthorised access or fraudulent activity.
   
   
3. AI and Machine Learning: AI and machine learning technologies will be used to enhance SCA by analysing user behaviour, device characteristics, and other data to detect anomalies or suspicious activity. This can provide a more adaptive and personalised approach to authentication.
   
   
4. Multi-Channel Authentication: SCA methods may extend beyond traditional online and mobile channels to encompass IoT devices, smart homes, and other connected environments. Ensuring secure access across various touchpoints will become increasingly important.
   
   
5. Blockchain and Decentralised Identity: Blockchain technology could be used to create decentralised identity solutions, giving users greater control over their personal data and identity verification. This may change the way SCA is implemented, with users managing their own digital identities.
   
   
6. Regulatory Changes: Regulatory standards, such as those governing SCA, may evolve to adapt to technological advancements and address emerging security threats. Regulators may provide more clarity on specific use cases and exemptions to strike a balance between security and user convenience.
   
   
7. Interoperability and Standardisation: The financial industry and technology providers may work toward standardising SCA methods and protocols to ensure interoperability and a consistent user experience across different platforms and service providers.
   
   
8. Alternative Authentication Methods: As technology evolves, new forms of authentication may emerge. This could include methods like gesture recognition, voice biometrics, or even brainwave authentication.
   
   
9. User-Centric Approaches: Future SCA methods may focus on empowering users to have more control over their identity and the authentication methods they prefer. This could lead to more user-centric, consent-driven approaches to SCA.
10. Security and Privacy Balance: Striking a balance between security and user privacy will remain a challenge. As SCA methods become more sophisticated, it will be essential to protect user data and privacy while ensuring robust security.

The future of SCA will be driven by a combination of technological innovation, regulatory changes, and the ongoing need to adapt to emerging threats. Businesses and financial institutions will need to stay agile and keep up with these developments to provide both secure and user-friendly authentication experiences for their customers.

How can Organisations get started with implementing Strong Customer Authentication Methods?

Implementing Strong Customer Authentication (SCA) methods in an organisation involves several steps to ensure compliance with regulatory requirements and enhance the security of online transactions. Here's a general guide on how organisations can get started with implementing SCA:

1. Understand Regulatory Requirements:
   • Begin by thoroughly understanding the SCA regulations that apply to your organisation. Regulations may vary by region, so it's essential to identify the specific requirements that affect your operations.
     
     
2. Assess Current Authentication Methods:
   • Evaluate your existing authentication methods to determine how they align with SCA requirements. Identify any gaps or areas that need improvement.
     
     
3. Select Appropriate SCA Methods:
   • Choose the SCA methods that are most suitable for your business and customers. This may include two-factor authentication (2FA), biometrics, knowledge-based authentication (KBA), or other strong authentication mechanisms.
     
     
4. Implement Multi-Factor Authentication (MFA):
   • Implement multi-factor authentication as a foundational step. Ensure that users are required to provide at least two authentication factors when accessing their accounts or making online transactions.
     
     
5. Integrate Authentication Solutions:
   • Integrate SCA solutions into your existing systems and applications. This may involve working with authentication service providers or developing in-house solutions.
     
     
6. Educate Your Team:
   • Ensure that your team, including customer support and technical staff, is well-informed about the new SCA procedures and methods. Training is essential for a successful implementation.
     
     
7. User Communication and Education:
   • Inform your customers about the changes in authentication procedures and why they are necessary. Clear and timely communication can help reduce friction during the transition.
     
     
8. Testing and Quality Assurance:
   • Thoroughly test the SCA methods to ensure they work correctly and securely. Conduct penetration testing and quality assurance to identify and rectify any vulnerabilities.
     
     
9. Compliance Monitoring:
   • Establish a system for ongoing monitoring and reporting to ensure that your organisation remains in compliance with SCA regulations. This includes tracking metrics related to authentication success and fraud prevention.
     
     
10. Risk-Based Authentication (RBA):
    • Consider implementing risk-based authentication, which can adapt the level of authentication required based on the risk associated with a particular transaction or user. This can help reduce friction for low-risk transactions.
      
      
11. Exemption Handling:
    • Be prepared to handle exemptions from SCA for specific use cases where it's not required, such as low-value transactions or trusted recurring payments.
      
      
12. User Experience (UX) Design:
    • Pay attention to the user experience. Ensure that the authentication process is as smooth and user-friendly as possible to prevent customer frustration and cart abandonment in e-commerce scenarios.
      
      
13. Data Privacy and Security:
    • Implement robust data privacy and security measures to protect user data during the authentication process. Comply with data protection regulations, such as GDPR, where applicable.
      
      
14. Adapt to Future Changes:
    • Be prepared to adapt to future changes in SCA regulations, technology, and security threats. Staying up to date is essential for long-term success.
      
      
15. Feedback and Continuous Improvement:
    • Gather feedback from both customers and internal stakeholders to continually improve the SCA process and ensure it meets the evolving needs of your organisation.

Implementing SCA requires a strategic approach that balances regulatory compliance with user convenience and security. It's essential to stay informed about industry best practices and evolving authentication technologies to ensure that your organisation's approach remains effective and up to date.