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What Is Strong Customer Authentication?

Mandated under the PSD2 directive in the European Union, SCA requires that certain transactions be verified using at least two independent factors: something the user knows, something they have, or something they are. This approach strengthens the customer verification process, especially in card-based payment scenarios, and helps prevent unauthorized access or fraudulent activity.
But while SCA enhances security, it also introduces new challenges for businesses — from managing exemption to maintaining a smooth user experience. Understanding how SCA works, who it applies to, and how to implement it effectively is essential for any company handling online payments.

What Is Strong Customer Authentication (SCA)?

Strong Customer Authentication (SCA) is a regulatory requirement introduced under the PSD2 directive in the European Union. It aims to make online payments more secure by requiring businesses to verify the identity of the customer using at least two out of three independent factors:

  • Something the user knows (e.g., a password or PIN)
  • Something the user has (e.g., a smartphone or hardware token)
  • Something the user is (e.g., a fingerprint or facial recognition)

This layered approach to authentication significantly reduces the risk of unauthorized transactions and helps protect both customers and businesses from fraud.

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Why Was SCA Introduced?

The rapid growth of online transactions has transformed how businesses and customers interact, but it has also opened the door to increasingly sophisticated payment fraud. Traditional card-based payments, especially those processed without strong identity verification, have become a prime target for cybercriminals. These vulnerabilities expose both user data and business systems to significant risk, making secure authentication more critical than ever.

To address this challenge, regulators introduced Strong Customer Authentication (SCA) as part of the broader PSD2 directive. This multi-factor authentication framework is designed to ensure that payments are not only authorized but also protected against unauthorized access and manipulation.

The goal of SCA is clear: make payments more secure without compromising the user experience. By enforcing strong authentication, businesses can better safeguard customer data, reduce the likelihood of fraudulent transactions, and build trust in their online platforms. At the same time, the regulation allows for specific exemptions—such as low-value transactions or recurring payments—to maintain convenience where the risk is minimal.

How Does SCA Work?

When a customer initiates an online payment, the system must trigger authentication that meets SCA standards. For example:

  • A user making a card payment might receive a push notification on their phone asking them to confirm the transaction using a fingerprint.
  • A banking app might require a password and a one-time code sent via SMS.

In many cases, 3D Secure 2 (3DS2) is used to facilitate this process, especially for card payments. This protocol allows for seamless authentication while maintaining a smooth user experience.

Who Needs to Comply with Strong Customer Authentication?

Strong Customer Authentication is not optional for businesses operating within the European Economic Area (EEA). If your company processes online payments or initiates transactions involving customers in the EU, you are likely subject to SCA requirements under PSD2.
Here’s who must comply:

  • Payment service providers (PSPs), including banks, fintechs, and e-wallet platforms
  • Merchants accepting card payments online
  • SaaS platforms that facilitate a customer transaction
  • Marketplaces and platforms that manage user-initiated payments
  • B2B software editors offering embedded payment solutions

Even if your business is based outside the EU, you may still need to comply if you serve customers within the region. Ignoring SCA can lead to declined transactions, increased fraud exposure, and regulatory penalties.

Benefits of Strong Customer Authentication

Implementing Strong Customer Authentication offers more than just regulatory compliance. It brings several key advantages to businesses and customers alike:

  • Reduced fraud risk: By requiring multi-factor authentication, Strong Customer Authentication (SCA) significantly lowers the risk of unauthorized transactions. Each payment must be verified using at least two independent factors—such as a password, a mobile device, or biometric data—making it much harder for attackers to impersonate a user or intercept customer credentials. This layered approach to authentication is especially effective in preventing fraud in online and card-based payments, where traditional security methods often fall short.

  • Increased customer trust: When customers know their online payments are protected by strong authentication, they feel more confident completing transactions on your platform. This trust translates into higher conversion rates, reduced cart abandonment, and stronger brand loyalty. A secure and transparent payment process reassures users that their personal and financial data is being handled responsibly.
  • Regulatory alignment: For companies operating in or serving the European market, SCA is a legal requirement under the PSD2 directive. Ensuring compliance not only helps avoid regulatory penalties and transaction rejections but also demonstrates a commitment to best practices in payment security. Aligning with PSD standards positions your business as a trustworthy partner in the digital economy.

  • Improved data security: Implementing SCA encourages better management of customer data and payment credentials. By enforcing secure authentication protocols, businesses reduce their exposure to data breaches and identity theft. This proactive approach to user protection strengthens your overall cybersecurity posture and minimizes the long-term costs associated with fraud and data loss.

Challenges and Criticism

Despite its benefits, SCA isn’t without its challenges. Many businesses—especially those in e-commerce and SaaS—have faced hurdles in implementation:

  • Friction in the user journey: Adding extra steps to authentication can lead to cart abandonment or failed transactions, especially if the user experience isn’t optimized.
  • Technical complexity: Integrating SCA-compliant flows, especially across multiple payment providers or platforms, can be resource-intensive.
  • Managing exemptions: Understanding and applying the right exemption (e.g., for low-value payments or recurring transactions) requires careful planning and monitoring.
  • Inconsistent enforcement: Some regions or banks interpret PSD2 requirements differently, leading to confusion and inconsistent customer experiences.

How to Prepare Your Business for Strong Customer Authentication

Identify which transactions fall under SCA and where authentication is required.

Ensure they support SCA-compliant protocols like 3D Secure 2 and can handle exemptions properly.

Design intuitive authentication flows that minimize friction—especially on mobile.

Let users know why these changes are happening and how they help keep their payments secure.

Track transaction success rates, fraud attempts, and user feedback to continuously improve.

Strong Customer Authentication is more than just a regulatory checkbox—it’s a critical layer of defense against fraud, a trust signal for your customers, and a foundation for safer online payments.
While implementing SCA can introduce complexity, especially around user experience and exemptions, the long-term benefits far outweigh the challenges. By understanding the rules, preparing your systems, and educating your users, your business can stay compliant, reduce risk, and build a more resilient payment infrastructure.

FAQ

Need to learn more?

Regulation protects businesses and consumers from abuse, fraud, and financial risks, while ensuring market transparency and stability.

Key regulations include GDPR (data protection), the AML Directive (anti-money laundering), and PSD2 for payment security.

By implementing strict internal compliance processes, training employees on regulatory requirements, and using technology solutions to automate monitoring and audits.

Companies face substantial fines, criminal penalties, reputational damage, and potential restrictions on their business operations.

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