Online card fraud falls as a result of strong customer authentication, study shows

By Puja Sharma

The implementation of PSD2 and Secure Customer Authentication (SCA) has been a stand-out milestone for the payment and fintech community over the past few years.

For the most part, it has been a resounding success with studies showing that nearly three-quarters of retailers have seen a drop in fraud in the months post-implementation, according to the study by Barclaycard. Getting to this pivotal moment wasn’t easy, however, the payment sector should be proud of the success this initiative has achieved whilst noting a complex road ahead remains for countering payment fraud.

It is clear however that some sectors have struggled more than others to adapt and implement SCA, and it hasn’t eliminated online card fraud, with fraudsters working to adapt their techniques accordingly. As we approach the busy end-of-year trading period for online retailers and merchants, it would be wrong to think this work was a “job done”. Below are three areas to look out for in the months ahead when it comes to countering online payment fraud.

SCA requires shoppers to provide two-factor authentication to complete online purchases and was introduced to help fight the £238.6m of online fraud committed in the UK each year.

Encouragingly, the data shows that compliant businesses are benefitting from these tighter controls, with 73% reporting that online payment fraud levels have declined since the regulation was introduced 200 days ago, on March 14^th. Among those experiencing a decline in fraudulent activity, the average reduction is around 25%. As a result, almost two-thirds (63%) with an eCommerce channel believe SCA has had a positive impact on their business.

Yet, despite the financial benefits of introducing two-factor authentication, the study also found that almost three in 10 (28%) businesses are still not fully compliant with the regulation. Proprietary Barclaycard transaction data shows this comes at a high cost, with over £2.07 million in sales being declined every day because payments are being routed through non-secure channels and, as a result, failing mandatory security checks.

Of those yet to fully implement two-factor authentication, insufficient time and funds to implement the controls were cited as the biggest barriers to compliance. However, reassuringly, most businesses are planning to conform to the new rules within the next seven months, on average.

Consumers welcome tighter security

The majority of shoppers see the additional security checks as a positive development, with four in five (80%) happy to go through a more time-consuming checkout process if it helps protect their personal and financial details.

As a result, the number of shoppers that drop out at the point of sale after putting items in their online basket – known as ‘basket abandonment’ – has decreased from 32.4% to 28.9% since SCA was introduced.

Kirsty Morris, Managing Director of Specialist Sales at Barclaycard Payments, said: “It’s reassuring to see how impactful the introduction of SCA has been in combatting the levels of online fraud in the UK.”

“While most businesses have adapted well to the new levels of security, it does remain concerning that so many are still yet to become fully compliant. Our data shows that businesses risk losing millions in revenue by not upgrading their systems, so it’s important they look to make the shopping experience as safe and smooth as possible for their customers.

“By deploying sophisticated fraud checking solutions such as Barclaycard Transact, companies can ensure that both their eCommerce shops and their customers are better protected from fraudsters, while also reducing friction at the checkout.”

Key Highlights

• 200 days on from the mandatory introduction of Strong Customer Authentication (SCA) in the UK, 73% of retailers have seen online payment fraud decline as online shopping becomes safer
• Consumers welcome the additional security, with 80% happy to spend extra time at the checkout if it helps protect their security
• However, 28% of merchants still aren’t fully compliant, leading to over £2.07m in sales being declined every day