Strong Customer Authentication: what it is and why it’s important for Ukrainian fintech projects to know about it?

On September 14, the PSD2 directive became fully operational in the EU financial market. This is especially true of its Strong Customer Authentication (SCA) standard. Today I will briefly describe it’s main things, after which — if your project is related to payment services — you will understand the importance of this information.

What is PSD2?

I’ll start with a simple one — for those of my readers who are not aware of all the details. Payment Services Directive 2015/2366 is the EU directive oа payment services in the domestic EU market, accepted in 2015. You see, in civilized countries the implementation period for important laws, related the financial sphere, is indicated not for a couple of months, but, for example, 2 years. After that, PSD2 had a step-by-step getting into full operational mode. The deadline was September 14, 2019 — a little over two weeks ago the Strong Customer Authentication (SCA) standard came into force. We’ll talk about him.

The main goal of PSD2 is to ensure the security of user transactions and to expand the ecosystem of financial services in the EU financial market. That sounds cool and promising, right? This good goal needs a convenient implementation tool. SCA is this tool.

The basis of Strong Customer Authentication

SCA is, in fact, a set of new rules by which authentication of users who make a transaction will be carried out. Merchants and PSP providers are obliged to add additional customer verification to their user scenario.

For example, let’s talk about standard internet acquiring. Before the Strong Customer Authentication, payment is done when you entered your bank card details, after which the payment request was confirmed with a one-time password. A familiar story.

After the start of SCA, this is not enough. Another payment security parameter is needed. These can be:

  • Standard password / PIN / secret word;
  • Biometric confirmation (fingerprint, facial biometry, iris recognition etc.);
  • ID of the smart device through which the payment is made;

An important point: the new requirements don’t relate to payments in ordinary stores and are not related to direct debit.

The new 3D Secure 2.0 protocol will be responsible for for the technical side of the SCA. It’s only a second transaction confirmation request for the customers, but for a business is a headache. How to make it convenient, beautiful and understandable, as well as integration tasks?

In what cases this doesn’t concern you? (exceptions from SCA)

For the banks’ and PSP providers’ processing centre, one more task is added — how to determine, in what cases strict identification will be applied and in which it’s not. Including an assessment of the risk of payment.

Fortunately, laws were not written somewhere in the CIS countries, but in the EU, so everything is very clear. So, SCA doesn’t apply to:

  1. Payments to 30 euros. But there are exceptions. For example, if there are a series of identical payments with a minimum threshold before the limit, anti-fraud should work.
  2. Subscriptions. Don’t worry, your Netflix, Apple Music or other services subscription won’t suffer. No one will go against a large international trust business;
  3. Merchant-initiated payments. If you added your bank card to Uber or Bolt, you won’t be required to confirm the payment twice.