The Retailer Spring Edition 2022


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Ed Whitehead MD EMEA Signifyd

E urope is struggling with SCA after one year of the new regulation. Has the UK learned anything as it begins its new payments era? With Strong Customer Authentication (SCA) enforcement in its infancy in the UK, there are some valuable lessons to be learned from European countries and merchants who have gone before. Much of Europe has a one-year jump on the UKwhen it comes to living with SCA. The early pioneers are finding that the advice dispensed in the SCA lead-up was worth listening to. A Signifyd analysis of a relevant subset of transaction data in three countries — Italy, Spain and France — shows that: • A year after enforcement started in much of Europe, the state of readiness for SCA varies widely by country. • The expert advice to merchants to move off of 3D Secure version 1, was the right advice, but not always heeded. • Avoiding SCA requirements through the wise use of exemptions and by keeping fraud rates low is still a key strategy for providing a frictionless customer experience. To reach these conclusions, Signifyd examined a subset of transaction data from orders subject to 3D Secure review in Italy, France and Spain to determine the effect SCA was having in the three countries. The answer is wildly different depending on the country. First, a quick refresher. The newly enforced SCA requires that an online shopper verify their identity in two of three ways: • Something they know — like a one-time passcode. • Something they have — like the mobile device they are ordering on. • Something they are — like a digital fingerprint or a facial recogni tion scan. Capturing that verification can require a consumer to go through extra steps, sometimes including visiting a second website to complete the required confirmation. That’s where SCA’s main potential for adding friction lies.

new era of SCA.” ‘‘

Find a partner that can offer guidance and strategy when it comes to managing the

So how has this played out in the real world? Let’s start with Italy, where surprisingly 57.7% of the orders Signifyd studiedwere processed using 3DS, version 1, the obsolete version of 3DS widely disparaged in the run-up to SCA enforcement. Risk experts urged merchants and banks to upgrade from the old technology , as it was not compatible with aspects of SCA that were designed to limit friction and maintain healthy conversion rates. 3DS version 1, which is 20 years old, does not support SCA exemptions, a key strategy for reducing friction in the checkout experience. It doesn’t accommodate SCAon mobile apps or internet of things devices. It doesn’t support biometrics, the common way to satisfy SCA’s requirement that a customer authenticate by “something they are.” And sowhat happens in a countrywhere a large majority of SCA-eligible orders are processed via 3DS version 1? First, the study showed, only about 70% of 3D Secure orders in Italy were approved. But that’s only part of the story. In fact, in the study, 42% of Italy’s approved orders were met with significant friction, due to 3DS version 1 reviews, an experience that undoubtedly led to some customer churn. On the decline side, 22% of orders were rejected or abandoned due to 3DS friction or the lack of a customer-friendly SCA strategy focused on avoiding SCA reviews when possible. In the real world, that happens when exasperated shoppers cancel or ignore an SCA step-up challenge; or when an order times out, due to confused consumers or creaky technology that takes too long to process the order. Ultimately, only 8% of orders in Italy were declined for good reason, such as genuine fraud, invalid credit cards, failed authorisation and other serious red flags. All that means that in the end, barely more than a quarter of orders — 28% — were likely approved with little friction It’s fair to say that the picture in Italy is not a pretty one. In a way, Italy serves as an example of what not to do. If we turn to Spain and France, we see that only 16.15% and 3.27% of orders respectively are reviewed via 3DS version 1. And in Spain, the approval rate of all 3DS reviewed orders was nearly 77%. Of the identified declines in Spain, 2.5%were due to complications with 3DS version 1. Another 2.3% were declined when the cardholder cancelled an SCA challenge and .43% timed out.

doing too much damage.” ‘‘

UK merchants and banks have time to learn lessons from the rest of Europe before

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