SCA study forecasts €57 billion loss in economic activity in Europe

Many businesses -- especially smaller ones -- have yet to fully grasp the disruptive impact of SCA

  • Study conducted by 451 Research forecasts that Europe’s online economy risks losing €57 billion as Strong Customer Authentication (SCA) is enforced and only one in two businesses anticipate being compliant before September.

  • SCA will disproportionately impact small businesses: three in five businesses with under 100 employees are either unfamiliar with SCA, won’t be compliant before the September deadline, or are unsure when they will be ready.

AMSTERDAM — Today, payments infrastructure company Stripe released a new study conducted by 451 Research forecasting that Europe stands to lose €57 billion in economic activity in the first 12 months after SCA takes effect. The findings are based on surveys conducted with 500 qualified payment professionals at online businesses and 1000 consumers in the UK, France, Germany, the Netherlands and Spain.

European businesses are unprepared for SCA and small businesses will bear the brunt of it

With just over three months to go before SCA is enforced, preparedness remains remarkably low: 40% of businesses aware of SCA say they feel prepared to address its requirements. Most businesses are now racing against the clock to become compliant, with 44% expecting to be ready only on the exact day SCA takes effect (September 14).

SCA will disproportionately impact small businesses: three in five businesses with under 100 employees are either unfamiliar with SCA, don’t plan on being compliant before September, or are unsure when they will be ready. Contrast this with larger merchants of more than 5,000 employees where only 1 in 25 payment professionals are unaware.

Jordan McKee, analyst at 451 Research said: “SCA is unequivocally the single most disruptive event to impact European digital commerce, and many businesses—especially smaller ones—have yet to fully grasp its extensive impact. Our study indicates low levels of preparedness and, most troublingly, a lack of appreciation for how SCA will transform how European consumers will buy online.”

Businesses underestimate the complexity of SCA compliance tools: exemptions and 3D Secure 2

Many businesses are preparing to minimize the transactions for which SCA will be required. This can be achieved through a set of exemptions, which allow, for example, recurring payments or small purchases (under €30) to be approved without extra layers of friction.

However, businesses are dramatically underestimating the complexity and resource burden of managing and optimizing these exemptions; 50% of respondents plan to handle management of exemptions completely in-house. The challenge is that exemptions are complex to administer, especially for smaller businesses, and require visibility on how card networks and banks will apply exemptions across Europe. For instance, purchases under €30 are exempt from SCA, but SCA will be requested by the customer’s bank once five transactions below €30 have been made or the total value of those transactions reaches €100.

The most recent version of 3D Secure, which to date has been known by consumers under names such as Verified by Visa and Mastercard Secure Code, is emerging as a popular SCA-compliant way to accept payments online. However, one in four online businesses are not yet familiar with it. Further, for those that are familiar, 24% believe they will only implement it after the September deadline.

“SCA will make or break internet businesses. The urgency to get ready for it cannot be overstated,” commented Guillaume Princen, Head of Continental Europe at Stripe. “We’re building infrastructure to insulate internet businesses from this kind of regulatory complexity. Our ambition is to accelerate online commerce and empower innovators to easily experiment with new internet business models.”

SCA will exacerbate low consumer tolerance for bad checkouts, causing a rise in cart abandonment

Just 47% of European consumers feel today’s online checkout process is ‘very easy’ and the most attractive customers for online businesses often abandon purchases when encountering a poor checkout experience. For example, 74% of Gen Z shoppers have abandoned an online purchase in the past six months due to a bad checkout experience. Over half (52%) of online shoppers who abandon a purchase end up completing the transaction with a competing merchant.

Against this backdrop of low consumer tolerance for poor checkout design, SCA is likely to make matters worse. 73% of shoppers are unaware of new authentication requirements coming to the online checkout experience in September. SCA increases the likelihood that shoppers will abandon shopping carts in September when they encounter unexpected obstacles to everyday online purchases, such as paying for taxis, ordering food delivery, and subscribing to TV and music services.

Many consumers prefer SMS passcodes over Apple Pay despite convenience and security benefits

When asked what they believe to be the best authentication experience, 54% of consumers said one-time passcodes, while 26% said fingerprint recognition (like Touch ID on Apple devices). Despite this apparent low preference for fingerprint recognition, 43% still believe that it is “most secure”. This indicates a need to help consumers get more comfortable with mobile wallets like Apple Pay and Google Pay as a secure and easy way to check out online.

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