As the European Union’s PSD2/SCA multi-factor authentication directive continues to be implemented across the European Economic Area, initial European Banking Authority data shows the encouraging impact of reducing fraud rates. Despite this, eCommerce checkout abandonment remains a problem due to the friction caused by authentication procedures required by ineffective fraud management strategies. But there is a way to prevent fraud and be SCA compliant while keeping customers happy with fricntionless checkout - and it’s all down to using an advanced anti-fraud solution.
Frictionless checkout remains a problem - one that can be avoided
In early 2020, we were trumpeting the benefits of implementing an advanced anti-fraud management solution based on behavioural biometry and device fingerprinting supported by Machine Learning (ML) as a cure for implementing the EU’s PSD2/SCA directive. We knew back then that our solution was, and still is, the best way to effectively reduce fraud whilst ensuring a positive online shopping customer experience. If you’ve followed our blog entries on PSD2, you’ll be aware that postponing implementation of the directive across the EEA was down to merchant fears that additional payment authentication procedures would scare away customers leading to loss of income. And they had good cause for concern.
As PSD2 has gone into effect, many merchants have experienced friction issues first-hand, affecting their bottom-line. In France and Spain, some merchants have seen a 25% decline in conversion rates, which is better than those in Germany and Italy who have seen declines of over 30% and 40% respectively. Checkout friction is a real and costly problem, but one that can easily be avoided with the right expertise. Some eCommerce businesses chose to prepare, others relied on postponement. But then came a pandemic and flipped everyone’s plans.
A COVID-19 fueled eCommerce boom and PSD2 Implementation fears
Our original assertions have only been reinforced as eCommerce sales have exploded during the ongoing COVID-19 pandemic due to the effects of lockdowns. Brick and mortar shops were forced to close, leaving a group of shoppers and merchants who previously felt uncomfortable with eCommerce finally having to make the move online. The no. of global sales increased, but this came hand in hand with associated problems. Shoppers expecting a quick payment process sometimes found themselves having to deal with layers of authentication they felt uncomfortable with, even abandoning checkout carts altogether.
Then there’s the prevalent issue of fraudulent activities, as fraudsters had a whole new group of inexperienced online shoppers and merchants to target. Amidst all this, merchants have had to grapple with being PSD2 compliant while trying to ensure their customer’s positive shopping experiences. This has often led to relying on ineffective fraud management that can in fact increase checkout friction - despite best intentions of becoming PSD2/SCA compliant. Have you ever had to deal with an annoying CAPTCHA to verify that you are not a robot whilst nearing the end of a transaction? The best antifraud intentions are at the core of this process, but the risk of these visual puzzles causing friction is all too high. Failure by customers to correctly complete the CAPTCHA request, whether it’s selecting traffic lights or trucks from a series of images, can reset the whole process until it is completed correctly. Some CAPTCHAs are becoming harder to solve and can directly impact a customer’s decision to ditch a transaction. Not to mention the code-mania that the banks push onto users - fill an ePIN, now a code from the message… Of course, there are far less invasive ways to provide an anti-fraud solution and erase customer checkout friction.
Another approach that makes things easier for the user instead of serving puzzles or tasks is to leverage who they are to confirm their identity. There are a multitude of biometric markers that can be used for this purpose from actual hand fingerprints to the way each of us reacts to certain stimuli.
Passive measures backed up by machine learning models ensure frictionless checkout experiences
In times of adversity, there is also scope for adaptability. Many online merchants in their requirement to implement the PSD2 directive were perhaps unaware that the core MO of their business, to keep customers happy and increase sales, can be maintained, even improved, whilst introducing an advanced anti-fraud solution. Adapting to regulations and threats need not be a knee-jerk reaction, but implemented as a definitive response to improve various aspects of a business (fighting fraud, removing checkout friction and increasing sales) with one solid solution.
By using a passive solution, fraud prevention takes place in the background using behavioural biometry and device fingerprinting supported by ML to automatically analyse thousands of pieces of data in real time. At Nethone, for instance, we analyse how each customer interacts with their devices, from simple movements using their mouse, taps on a keyboards, scrolling, use of copy/paste from a clipboard etc., even knowing the geo-location of the user to confirm identity and avoid multi-factor authentication. The customer remains blissfully unaware, happily shopping and buying their desired items. The less time it takes a customer to get to checkout and pay, the more likely they will have a positive experience.
Fight Fraud Effectively, reap the benefits from SCA exemptions
The implementation of PSD2/SCA allows for what’s called Transaction Risk Analysis (TRA) exemptions whereby multi-factor authentication can be avoided in order to make a customer transaction pass as smoothly as possible. In reality, this means that the use of an advanced anti-fraud solution keeping fraud rates well below acceptable thresholds enables the exemption. In a practical sense, the SCA process requires 3 factors to be confirmed in order to allow a transaction: And this is where our solution fits in to provide you with a perfect outcome. Despite the use of the word exemption often being used to describe the process, this doesn’t mean SCA is bypassed. You, the merchant, can yield the benefits of effective anti-fraud management. By analysing digital fingerprinting and biometric data, the criteria for authentication can be met. Customer frustration is eliminated, all the while merchants remain well within compliance. The benefits of our solution to any eCommerce business are numerous: The accuracy of our analysis is so high that it meets all the requirements of SCA and PSD2 and can save you money and maintain or improve your online reputation. Fortunately, the exemptions afforded by using advanced anti-fraud management is not only a solution for companies within the EEA. As companies around the world adopt various methods to combat fraud while limiting checkout friction, the principle of exemption is also possible on payments processed through the 3DS2 protocol (3D Secure 2.0 for credit and debit cards) on which PSD2/SCA also works. But again, this is only possible when fraud rates are kept well below the acceptable thresholds. This is only possible when using advanced solutions. Therefore, the benefits of using advanced anti-fraud prevention such as Nethone’s proprietary solution assures merchants:
seamless UX for the customers (frictionless flow as the tool works in the background, no need for additional authentication like sending SMS, eliminating the need for such a costly system)
enhanced security (protects from the unauthorised use of login and password, but also from fraud tools that easily deceive other account takeover (ATO) solutions such as stealing cookies or phishing domains
cut of operational costs (we take on the burden of the hardest parts of the authentication process).
To learn more about how to ensure a frictionless checkout experience during your online payment process, prevent fraud and improve your company’s sales growth, contact our team to discuss possible solutions.