In recent years, digitalisation has significantly changed everyday life for many people and has fundamentally transformed the way payments are processed. However, with the growing prevalence of e-commerce and mobile banking services, the risks of fraud and abuse online have also increased. The European Union responded with the Payment Services Directive PSD2, which established new, uniform standards for the security of electronic transactions in 2018.
Strong Customer Authentication (SCA) – A Definition
Strong Customer Authentication (SCA) is a European security requirement introduced under the PSD2 framework to reduce fraud and make electronic payments safer. It obliges payment providers to verify the identity of customers in electronic transactions using at least two independent factors. The goal is to enhance security for both banks and end users while meeting regulatory requirements.
How SCA Works
A typical SCA process begins when initiating a payment or logging into an online banking account. The bank or payment service provider requests that the user confirm their identity with at least two independent factors: something they know (e.g., password or PIN), something they possess (e.g., smartphone, bank card or TAN generator), and/or something inherent (e.g., fingerprint or facial recognition).
After entering a password, for example, the user may receive a TAN via a previously registered device or provide a biometric verification. Only when both factors are successfully verified is the transaction executed or access granted. Modern online payments often use systems such as 3D Secure, where the confirmation occurs directly within the payment process.
Benefits of SCA for Banks and Financial Institutions
Strong Customer Authentication (SCA) provides banks and financial institutions with increased security and protection against fraud in electronic payments. By requiring verification using at least two independent factors, the risk of identity theft and unauthorised transactions is significantly reduced. This enhances customer trust in the security measures of financial institutions and can improve customer satisfaction and loyalty.
In addition, SCA helps banks comply with regulatory requirements such as the EU Payment Services Directive PSD2, providing essential legal protection. At the same time, implementing SCA presents challenges, as it requires balancing security with user-friendliness to minimise abandonment rates during online transactions and ensure customer acceptance.
Benefits of SCA for Consumers
Consumers benefit from Strong Customer Authentication (SCA) through significantly increased security for online payments, which greatly reduces the risk of fraud and identity theft. This builds trust in digital financial services and enables safe transactions with a positive user experience. Additionally, SCA leads to more transparent and trustworthy payment processes, which is crucial in everyday digital life.
The Future of SCA
The future of Strong Customer Authentication (SCA) will be shaped by the increasing integration of artificial intelligence (AI) and innovative technologies such as biometric authentication and neurotechnology-based identification. AI will help continuously monitor user behaviour and trigger additional authentication when anomalies are detected, further enhancing security.
Device-bound passkeys are also gaining importance, combining security and usability by integrating two-factor authentication in a single step. Furthermore, the industry will increasingly leverage technologies such as blockchain to manage identities in a decentralised and tamper-proof manner. These developments aim to further reduce fraud risks while keeping the authentication process as seamless as possible for users.
