In this guide we’ll take a closer look at Europe’s Strong Customer Authentication (SCA) requirements and the kinds of payments they impact. We’ll also cover the exemptions that can be used for low-risk transactions to offer a frictionless checkout experience.
What is Strong Customer Authentication?
Strong Customer Authentication (SCA) is a European regulatory requirement to reduce fraud and make online and contactless offline payments more secure. To accept payments and meet SCA requirements, you need to build additional authentication into your checkout flow. SCA requires authentication to use at least two of the following three elements.
If you would like to read the original SCA requirements, they are set out in the Regulatory Technical Standards or RTS. Banks must decline payments that require SCA and don’t meet these criteria.
When is Strong Customer Authentication required?
Strong Customer Authentication applies to “customer-initiated” online and contactless offline payments within Europe. As a result, most card payments and all bank transfers require SCA. Recurring direct debits, on the other hand, are considered “merchant-initiated” and don’t require strong authentication.
For online card payments, these requirements apply to transactions where both the business and the cardholder’s bank are located in the European Economic Area (EEA).
How to authenticate a payment
The most common way of authenticating an online card payment relies on 3D Secure—an authentication standard supported by the vast majority of European cards. Applying 3D Secure typically adds an extra step after the checkout where the cardholder is prompted by their bank to provide additional information to complete a payment (e.g., a one-time code sent to their phone or fingerprint authentication through their mobile banking app).
3D Secure 2 is the main method for authenticating online card payments and meeting the SCA requirements. This version provides a better user experience that helps minimise some of the friction that authentication adds into the checkout flow.
Offline card transactions typically fulfill authentication requirements with PIN entry.
Other card-based payment methods such as Apple Pay or Google Pay already support payment flows with a built-in layer of authentication (biometric or password). These can be a great way for businesses to offer a frictionless checkout experience while meeting the requirements.
Exemptions to Strong Customer Authentication
Under this regulation, specific types of low-risk payments may be exempted from Strong Customer Authentication. Payment providers like Stripe are able to request these exemptions when processing the payment. The cardholder’s bank will then receive the request, assess the risk level of the transaction, and ultimately decide whether to approve the exemption or whether authentication is still necessary.
Building authentication into your checkout flow introduces an extra step that can add friction and increase customer drop-off. Using exemptions for low-risk payments can reduce the number of times you will need to authenticate a customer and reduce friction. We have designed our SCA-ready payments products to let you take advantage of exemptions when possible to help protect your conversion.
The most relevant exemptions for internet businesses are:
A payment provider (like Stripe) is allowed to do a real-time risk analysis to determine whether to apply SCA to a transaction. This may only be possible if the payment provider’s or bank’s overall fraud rates for card payments do not exceed the following thresholds:
- 0.13% to exempt transactions below €100
- 0.06% to exempt transactions below €250
- 0.01% to exempt transactions below €500
These thresholds will be converted to local equivalent amounts where relevant.
In cases where only the payment provider’s fraud rate is below the threshold but the cardholder’s bank is above it, we expect the bank to decline the exemption and require authentication.
This is one of the most useful exemptions for businesses and one of the most widely supported by banks. Stripe Radar offers comprehensive, real-time risk assessment that allows us to support this exemption for our users.
Payments below €30
This is another exemption that can be used for payments of a low amount. Transactions below €30 are considered “low value” and may be exempted from SCA. Banks, however, need to request authentication if the exemption has been used five times since the cardholder’s last successful authentication or if the sum of previously exempted payments exceeds €100. The cardholder’s bank needs to track the number of times this exemption has been used and decide whether authentication is necessary.
Due to the strict limitations of this exemption, the low-risk transaction exemption may be more relevant for most payments. We do, however, support this exemption for our users.
This exemption can apply when the customer makes a series of recurring payments for the same amount, to the same business. SCA is required for the customer’s first payment—subsequent charges, however, may be exempted from SCA.
This exemption should be very useful for subscription businesses and broadly supported by European banks. We enable this exemption for Stripe users. If you’re using Stripe Billing to create subscriptions, we automatically apply this exemption when relevant and can help manage authentication requests in case the exemption is rejected by the customer’s bank.
Merchant-initiated transactions (including variable subscriptions)
Payments made with saved cards when the customer is not present in the checkout flow (sometimes called “off-session”) may qualify as merchant-initiated transactions. These payments technically fall outside the scope of SCA. In practice, marking a payment as a “merchant-initiated transaction” will be similar to requesting an exemption. And like any other exemption, it is still up to the bank to decide whether authentication is needed for the transaction.
To use merchant-initiated transactions, you need to authenticate the card either when it’s being saved or on the first payment. Finally, you need to get an agreement from the customer (also referred to as a “mandate”) in order to charge their card at a later point.
This is a vital use case for business models that rely on delayed payments, charge variable amount subscriptions, or bill for add-ons. It is supported by most European banks and accepted if the transaction is considered low-risk by the bank.
Stripe API lets you authenticate a card when it’s being saved for later use and mark subsequent payments as “merchant-initiated transactions.”
When completing authentication for a payment, customers may have the option to allowlist a business they trust to avoid having to authenticate future purchases. These businesses are then included on a list of “trusted beneficiaries” maintained by the customer’s bank or payment service provider.
While allowlisting has the potential to make repeat purchases or subscriptions more convenient for customers, the adoption of this feature among banks has been slow. We support this exemption for our users when available.
Card details collected over the phone fall outside the scope of SCA and do not require authentication. This type of payment is sometimes referred to as “Mail Order and Telephone Orders” (MOTO). Similar to exempted payments, MOTO transactions need to be flagged as such—with the cardholder’s bank making the final decision to accept or reject the transaction.
This is an important use case for any business accepting payments over the phone and widely supported by banks. Payments created through the Stripe Dashboard are automatically marked as MOTO payments.
If your business is PCI-compliant and you’ve built your own system to accept phone orders, our payments APIs let you mark a payment as MOTO. Please contact us to enable this feature on your Stripe account and to access the technical documentation.
This exemption covers payments that are made with “lodged” cards (e.g., where a corporate card used for managing employee travel expenses is held directly with an online travel agent), as well as corporate payments made using virtual card numbers (which are also used in the travel sector).
We expect this exemption to have low practical use outside of the travel industry due to its very narrow scope. The exemption itself can only be requested by the cardholder’s bank, as neither the business nor payment providers (like Stripe) are able to detect whether a card belongs in these categories.
What happens if an exemption fails?
While exemptions may be very useful, it’s important to remember that it’s ultimately the cardholder’s bank that decides whether or not to accept an exemption. Banks can return new decline codes for payments that failed due to missing authentication. These payments then have to be resubmitted to the customer with a request for Strong Customer Authentication. SCA-ready products from Stripe automatically trigger this extra authentication when required by banks.
If your business is impacted by SCA, we recommend preparing for a fallback in case an exemption is rejected and your customer needs to authenticate. This is particularly important if you charge your customers when they’re not actively in your checkout flow (i.e., when they are off-session) and your customer needs to return to your website or app to authenticate. Read our guide on designing payment flows for SCA for more information.
How Stripe helps you meet Strong Customer Authentication requirements
The changes introduced by this regulation deeply affect internet commerce in Europe. Impacted businesses that don’t prepare for these requirements could see their conversion rates significantly drop as SCA enforcement continues across European banks.
In addition to supporting authentication methods like 3D Secure 2, we believe successful handling of exemptions is a key component for building a first-class payments experience that minimises friction. Our payments products optimise for different regulatory, bank, and card network rules and apply relevant exemptions for low-risk payments, so as to only trigger 3D Secure when required. And as these rules change, we’ll be able to maintain and update this SCA logic in real time—taking into account each country’s enforcement timeline.
We have released a foundational payments API that uses Stripe SCA logic to apply the right exemption and trigger 3D Secure when necessary. Stripe Checkout and Stripe Billing are both built on top of this API and can dynamically apply 3D Secure when required.