Strong Customer Authentication: A guide for merchants

Strong Customer Authentication (SCA) is a PSD2-based European security requirement for many electronic payments in the EEA, UK, and Monaco, requiring customers to verify transactions with at least two factors drawn from knowledge, possession, and biometric inherence. Introduced to reduce fraud, SCA can involve passwords, one-time codes, mobile-device confirmation, or fingerprint and facial recognition, while exemptions may apply to low-value or low-risk payments, trusted merchants, secure corporate transactions, and certain recurring or out-of-scope payments. Merchants must balance compliance and fraud prevention with a smooth checkout experience, often relying on payment processors and 3D Secure protocols to apply authentication and risk-based exemptions appropriately. PSD2 also supports open-banking services by permitting authorized third-party providers to access account information or initiate payments with customer consent. Proposed PSD3 and Payments Services Regulation changes, expected around 2026 or 2027, could strengthen consumer protections, accessibility, fraud reimbursement rights, and payment-account verification, while authentication is likely to evolve through improved biometrics, behavioral and contextual analysis, artificial intelligence, machine learning, and potentially blockchain-based verification.

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