Strong Customer Authentication (SCA) – What it is and how does it work?


In the expanding digital ecosystem, the rise of fraudulent activities requires enhanced security measures like Strong Customer Authentication (SCA). Particularly prevalent within the European Economic Area (EEA), SCA, under new regulatory requirements, has become an integral component of electronic payments and card transactions. The Revised Payment Services Directive (PSD2) has significantly broadened SCA’s coverage to encapsulate most European institutions, amplifying its strategic importance in risk mitigation, customer engagement, and operational efficiency.

SCA is a strong security layer for transactions, reducing fraud, building trust, and cutting financial losses for businesses. Therefore, understanding the workings, benefits, and future of SCA in the digital payments landscape is becoming increasingly crucial in today’s digitised world and is the main focus of this article. 

What is Strong Customer Authentication?

Strong customer authentication (SCA) is a European regulatory requirement aimed at securing electronic payments made within the European Economic Area (EEA). Supported by most European banks, SCA has become a stronghold against potential fraud in online payments including popular systems like Google Pay, Apple Pay, and various payment services. Multiple factors, known as multi-factor authentication, including knowledge (something you know), possession (something you have), and inherence (something you are), form the basis of SCA.

To further elaborate, Strong Customer Authentication is a part of the revised Payment Services Directive (PSD2), which aims to increase the security of electronic transactions. As the world digitises, the risk of data breaches and fraudulent activities skyrockets, making SCA implementation a crucial step in fraud prevention.

With SCA, businesses can significantly reduce instances of fraud, providing an enhanced sense of security for both themselves and their customers. SCA is leaving its impact in different sectors, including those involving customer-initiated transactions like online payments, electronic payments, and even mail-order and telephone orders.. Hence, understanding and adopting SCA is becoming increasingly important for businesses across sectors.

How does Strong Customer Authentication work?

Strong customer authentication (SCA) is a complex process designed to enhance the security of online transactions. Here is a more detailed breakdown:

  1. Authentication request: When a client attempts to perform a secured transaction, a request for strong customer authentication initiates. This could be logging in to an account, making a card payment, or initiating a high-risk transaction.
  2. Multi-factor authentication: SCA relies on multi-factor authentication (MFA), a minimum of two out of three possible authentication factors. These are; Knowledge (Something you know): This often includes passwords or PINs. Possession (Something you have): Physical objects like a credit card, a mobile device, or a token. Inherence (Something you are): Includes biometric data unique to the individual such as a fingerprint, facial recognition patterns and voice recognition.
  3. Validation of authentication information: The service provider or the system verifies the provided information against what they have on file. The transaction request is denied if the authentication information does not match the records.
  4. Application of 3D secure: In the case of online payments, the SCA process often requires the application of 3D Secure protocol, a method verified by major card issuers. This mechanism provides an extra layer of protection to online credit and debit card transactions by prompting users for a password or biometric data to complete online purchases.
  5. Confirmation or declination: After successfully passing the SCA process, the transaction proceeds. If at any step the criteria aren’t met, the transaction is denied to safeguard the user’s security.
  6. Trace and audit: All of this is tracked and audited for future reference and continuous monitoring

By applying these steps, SCA ensures that transactions are secure and the risk of fraud is significantly minimised.

Reasons for implementing strong customer authentication

The surging rates of fraud mean that strong customer authentication is essential due to many reasons, including:

  • Rising rates of fraud: The increase in fraud has made stronger protections like SCA crucial. It helps to secure transactions and protect users’ information from cyber threats. 
  • Security for online payments and card transactions: SCA is a vital tool for securing online payments and card transactions, making it harder for fraudulent parties to gain unauthorised access to accounts or impersonate authentic users.
  • Applicable to mail orders and telephone orders: SCA is also applicable to mail orders and telephone orders. These payment methods can also be susceptible to fraud and therefore, SCA aids in their protection.
  • Enforcement by the European Banking Authority: The European Banking Authority (EBA) rejects methods such as on-device biometrics but enforces the use of SCA as a part of its efforts to reduce and prevent fraudulent transactions in the banking sector.
  • Enhanced security layer: European payment services have found SCA to be an effective security layer. By implementing SCA, businesses and customers are better protected against the risk of fraud.

The impact of strong customer authentication on businesses

The introduction of Strong Customer Authentication has a significant impact on businesses. These impacts, both positive and potentially challenging, include:

  • Increased security: Strong customer authentication majorly helps in tightening security measures against fraudulent transactions.
  • Enhanced customer trust: The implementation of SCA in a system reassures customers about the security of their personal and financial information.
  • Enhancing customer experience: Despite initial adjustments required for implementing SCA, it ultimately leads to a more secure transaction process. This boosts customer confidence and trust in the safety of their personal and financial information, enhancing their overall experience with the business.
  • Compliance with regulations: The necessity to align with regulatory requirements can be seen as a challenge to businesses unprepared for the transition.

Strong customer authentication in different industries

Strong Customer Authentication has found widespread usage across numerous industries due to its effectiveness in reducing potential fraud. Some of the prime sectors that use SCA include:

  • Banking: European banks were among the first to adopt SCA to secure online banking transactions.
  • Fintech: Given the digital nature of fintech businesses, SCA is an essential part of their security infrastructure.
  • E-commerce: This sector has been proactive with the use of SCA to secure online transactions and protect customer data.
  • Other Merchant-Initiated Transactions: While some cases may be exempted from SCA, the European payment landscape primarily requires its implementation for the safety of most transactions.

Strengthening Online Banking with SCA

The banking sector has always been a prime target for fraudsters and fraudulent activity. However, the introduction of Strong Customer Authentication (SCA) has led to a significant enhancement in the security measures of online banking.

Several advantages of implementing SCA in online banking include:

  1. Multi-Factor Authentication: By requiring customers to verify their identity through multiple factors, it becomes increasingly difficult for hackers to gain access to personal banking accounts. This could involve a combination of passwords, biometric data, and physical devices.
  2. Reduced risk of fraud: With SCA, banks can significantly decrease the risk of fraudulent transactions taking place. Any unusual activity will require SCA, immediately alerting the bank and customer.
  3. Improved customer confidence: When customers know their banking activities are well-protected, they are likely to have greater trust in the institution and use its online services more extensively.
  4. Compliance with regulations: It’s important to note that SCA is not simply an option, but a requirement under the PSD2 regulation. Banks in the European Economic Area (EEA) that fail to comply may face penalties.

While the implementation of SCA may initially trigger changes in user experience, it’s a transition that users are likely to appreciate once accustomed. By offering an extra shield of security, SCA strengthens the backbone of online banking and paves the way for a safer digital banking environment.

Robust identity verification and authentication in SCA

Identity verification and authentication serve as the foundation of Strong Customer Authentication. These processes not only validate a user’s identity but also determine the user’s eligibility for a particular service or transaction.

Here’s how robust identity verification and authentication can enhance SCA:

  • Comprehensive identity verification: A robust system eliminates the chances of fraud by conducting a thorough identity verification. This includes validating personal information against secure data sources and checking government-issued IDs. This sort of holistic approach ensures that the individual is genuinely who they claim to be.
  • Biometric authentication: Modern identity verification systems often use biometric authentication by using data such as fingerprints or facial recognition. These are unique to each individual, making them extremely reliable security checkpoints for SCA.
  • Use of AI and machine learning: Advanced technologies like AI and machine learning can proactively detect and flag any suspicious activities. They can learn from historical data and predict fraudulent patterns effectively.
  • Multi-Factor Authentication: A sturdy identity verification system uses multi-factor authentication, which is essentially what SCA is all about. The application of more than one verification method significantly boosts security and decreases the likelihood of unauthorised access or transactions.
  • Liveness detection: Modern identity verification programs have mechanisms to ensure the person is physically present during the transaction. This feature deters fraudsters from using photos or videos to trick the system.
  • Secure document verification: Such systems can precisely inspect and authenticate various documents, like passports or driving licenses, by checking holograms, QR codes, and other security features.
  • Seamless user experience: A potent identity verification system ensures the user journey remains simple and intuitive, making sure security doesn’t become a hurdle in user experience. 

By implementing robust identity verification and authentication process, businesses can assuredly comply with SCA requirements. More importantly, they equip themselves efficiently to tackle the menace of fraud, thereby fostering a safe and secure ecosystem for worry-free transactions.

Strong Customer Authentication by Udentify

Udentify brings to the table an innovative solution to secure customer authentication. By accurately determining the customer’s identity in seconds when opening an account or onboarding, Udentify provides a frictionless and secure authentication process. 

The company’s state-of-the-art biometric identity suite fuses AI facial recognition and voice recognition, sustained by passive liveness detection, creating an unparalleled anti-spoofing identity and reusable biometric solution across digital, web, and telephonic channels.

Udentify aims to simplify your transaction lifecycle, thereby reducing the likelihood of fraud. With Udentify, users get an effortless passwordless authentication process, designed to be user-friendly yet nearly impossible for fraudsters to crack. Udentify’s system allows you to access services through a fast, secure, and straightforward process of scanning the users’ faces or a few spoken words. This passwordless experience is not only user-loved but also despised by fraudsters, all while being more affordable than typical, less secure password systems. 

In conclusion, SCA represents a robust defence against fraud, and its widespread adoption is expected to create a safer online environment for users, businesses, and banks. Companies like Udentify power this change through innovative technology, creating a frictionless, secure authentication experience to enhance transactions and user trust.

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