How did it all begin?

Open Banking established the framework that allows users to share their banking data and their ability to transact across banks, fintech firms and third-party providers through Application Programming Interfaces (APIs). Following the passing of a revised Payment Services Directive (PSD2) in 2015 by the Council of the European Union, an early example of Open Banking implementation can be traced back to the UK in 2016, when the Competition and Markets Authority (CMA) set the requirements for nine of the largest banks in the UK to allow accredited fintech firms access to consumer data, following an investigation that concluded how larger and more established banks were not doing enough for consumers.

With Open Banking and the use of APIs, third-party providers can develop applications and services that add value to consumers, be it by creating a more cohesive user experience, providing users with personalised, data driven insights or even making payments more seamless. Open Banking has contributed to escalated growth, innovation and competition within the financial sector, and since then, many countries across the globe have found ways to embrace Open Banking regulatory practices to provide users with improved financial experiences.

What is Open Finance and how is it different?

Open Finance is the next appropriate step in the evolution of Open Banking. In essence, it is a data sharing framework that empowers consumers to authorise a broader set of institutions to share their personal data created by their financial services with third parties, thus allowing for greater access to financial services in a competitive and open market. Open Finance expands the reach of Open Banking by including more sources of data that consumers can tap into and disseminate to enable organisations to build new financial services and offerings linked to data taken from users’ assets & liabilities, tailoring them specifically to their current financial situation and requirements.

Open Finance goes beyond the scope of financial data available at institutions users bank with or invest at. It includes data from sources like insurance policies, utilities and telephone bills, taxes and other service providers such pension funds, covering the entire financial footprint of consumers. Leveraging these data points allows banks to understand users better, thus enabling them to build new financial products tailored to their specific needs. The main difference between Open Banking and Open Finance as it currently stands is that unlike Open Banking, Open Finance does not currently have a legal regulatory framework like PSD2 for it, although initiatives like Australia’s Consumer Data Right (CDR) regulation aim to cover that broader scope, and the UK’s Financial Conduct Authority (FCA) has started an investigation into regulatory requirements for Open Finance.

How does Open Finance benefit consumers?

Within the framework of Open Finance, any financial data created on behalf of consumers by institutions they use will be owned and controlled by consumers and no one else. When the data is then being reused by any other service provider, it takes place with the consumer’s informed consent and in an ethical and secure manner.

Financial institutions, investment portfolios, fiscal authorities, insurance providers and other billers would become data providers for customers. Third party providers such as fintech firms or the incumbents themselves will then access customer data and offer personalised products best suited to consumer needs. This will help not just the users by giving them easier access to a holistic overview of their finances and helping them on their financial wellbeing journey, but also help financial institutions and service providers build better products and services, become more efficient and build better relationships with users in the long run.

Open Banking as we know it has started a transformation of financial services by encouraging growth and collaboration in a traditionally closed and siloed industry. Access to information leads to healthier financial decisioning by all.

Globally, about 1.7 billion people are currently unbanked. For consumers who do not have access to traditional bank accounts and financial services such as loans and credit cards, Open Finance is expected to democratize access to these services. An open exchange of data will allow financial institutions, both new and legacy players to have a better understanding of unbanked users’ financial situation, and perhaps even support them with financial management advice based on their expenses and spending habits.

Conclusion

The evolution of Open Banking into Open Finance aims to make financial services and digital banking more transparent, while enabling users to choose who gains access to their data making financial services more inclusive competitive and accessible in the long run. In order to speed up the levels of adoption for Open Finance, the constant transformation of digital banking infrastructures is necessary. Open Finance will also allow businesses to gain access to more relevant data and enable the delivery of scalable fintech solutions fit for the needs of future generations.

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On the 28th September 2021, join Olivier Berthier, CEO & Co-Founder of Moneythor and this esteemed panel of speakers who will be discussing the state of the Open Banking in Asia, including:

• A Brief Look at Where we are Today
• The Need for a Comprehensive Open Banking Integration Strategy
• Open Banking Implementation Challenges and Solutions

Sign up for the event here.

Stay updated on global Open Banking here and read our guide on the subject.

The post SFA Virtual Event: Fundamentals of Open Banking appeared first on Moneythor.

We have created an interactive page that details the regions, countries and institutions that are moving towards open banking and propose a framework for categorising them based on four pillars:

1. Geographical Scope
2. Level of Regulation
3. Stage of Development
4. Degree of Standardisation

Regularly updated, this page will keep you up to date on Global Open Banking. Simply click on the country of your choice to see what initiatives are being implemented there.

The post Open Banking – A Global Outlook appeared first on Moneythor.

Building upon the Financial Planning Digital Services (FPDS) initiative which we had covered in April 2020 and compared to Europe’s PSD2 regulation, the Monetary Authority of Singapore (MAS) has this week delivered its own unique approach publicly named SGFinDex. It requires both banks and government agencies to provide access to data which can then be gathered and consolidated in one platform, and then shared under the consent of consumers.

What is SGFinDex?

SGFinDex stands for Singapore’s Financial Data Exchange and involves the consolidation of financial data from multiple sources including banks and government agencies in one place. It reduces the need for login to multiple apps and channels and simplifies the process of viewing and managing finances.

How does SGFinDex work?

The consent mechanism for SGFinDex and the sharing of data will be facilitated through the financial institutions’ own digital banking services embedding SingPass, the single sign-on service already used by all residents to access the government e-services. Consumers can decide which financial institutions they wish to share their financial data with and will be able to access it all through their banks’ digital channels.

Which banks and government agencies are part of SGFinDex?

Under the current version of SGFinDex, consumers will be able to share data to and from 7 banks established in Singapore, Citibank, DBS, HSBC, Maybank, OCBC, Standard Chartered and UOB, and from 3 different government agencies, the Central Provident Fund Board, Housing Board and the Inland Revenue Authority of Singapore.

What data will be shared?

The financial data being shared includes high level information from financial institutions such as current and savings account balances, fixed deposit balances, unit trust holdings, SRS accounts and holdings, CPFIS accounts and holdings, credit cards, personal and home loan outstanding balances. The data to be shared from government agencies includes CPF account balance, HDB loan balances and monthly instalment amounts together with NRIC/FIN information.

This data will be synchronised on a monthly basis, with the ability for consumers to select, add or revoke the sharing of specific assets, liabilities and/or institutions. What this means is if you synchronise on a given day of the month, the data available is only from the last day of the previous month plus the two months preceding that.

What are the benefits of SGFinDex?

For consumers

• Better experience

SGFinDex provides a simple and efficient way for consumers to view their consolidated financial information without having to log into multiple services.

• Enhanced security

All synchronisations of data are secured by SingPass which uses biometric authentication for login making the process very secure. Consumers also have full control over which data is shared.

• Improved financial planning

Having all financial information in one place will give consumers a holistic overview of their financial standing with personalised insights, recommendations and nudges which will enable them to make better and smarter financial decisions in the short- as well as in the long-term.

For banks

• Financial wellbeing is good for business

SGFinDex can help banks create detailed financial overviews that help consumers with their ongoing financial planning. Building a base of financially literate and secure consumers is in the best interest of banks, as these consumers tend to take on more financial products than those who are not as financially in-the-know.

• Deliver world-class personalised experiences

Once aggregated and classified, the consolidated data should be used to augment and personalise the products and services that are being offered to consumers. It is an opportunity for Singaporean banks to deliver world-class personalised experiences.

It is an exciting time to be delivering digital banking services in Singapore and we will continue to update our blog and newsletter on the latest about SGFinDex. If you would like to find out more about the ability of the Moneythor solution to help your bank deliver value-add services on top of SGFinDex as well as Open Banking in other jurisdictions, please feel free to contact us here.

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In this years’ report we revisit the countries that were leading the way in Open Banking to see what progress has been made and document any new countries that have launched Open Banking programmes over the last 12 months.

It is within this last year that we have begun to see the real-world implications of Open Banking and the true impact that it can have on the banking industry such as promoting financial inclusion, improving financial literacy and increasing competition.

While the road to Open Banking has not been easy with multiple setbacks and issues around secure data sharing, delays in bank adoption and inadequate payment systems, now more than ever we expect to see it to become globally mainstream as leading banks around the world look to implement some form of Open Banking standards.

Digital transformation has been top of the agenda for leading banks for years, but with the 2020 pandemic it cannot be denied that these plans have been accelerated. In the Banking space, Open Banking plays a crucial role in this transformation.

Global Open Banking

Low competition, high barriers to entry and a lack of customer switching had, until recently, reduced innovation in the banking industry. Incumbent players who dominated the industry struggled to introduce modern banking products and services that kept up with customers’ changing needs and preferences.

Fintechs and startups struggled to get a footing in an industry that regulation protected and kept closed off. Ultimately it was the customer who lost out and had to make do with sub-par banking products and experiences.

Over the last few years digital transformation in banking has required banks to rethink how they serve both retail and SME customers and Open Banking has emerged as a key to innovating the banking industry and driving profitability through collaboration with external parties. Open Banking, which promotes the secure sharing of bank financial data with third party providers (TPPs) through open APIs, enables those companies and banks to develop financial products. It is this sharing of data with TPPs and the opening up of the financial services industry that is driving innovation by both incumbents and newcomers alike in an industry that has struggled to digitalise at the same pace as other sectors.

“Open Banking is is the secure sharing of bank financial data and services with third parties through open APIs enabling those companies to develop financial products.”

Since Open Banking was first launched in Europe with the Second Payment Services Directive (PSD2) and quickly followed by Open Banking regulation in the UK, there has been a sharp rise in the number of Open Banking initiatives that have been launched across the globe. These initiatives, regulations and directives vary greatly depending a market’s decided approach.

This report details the regions, countries and institutions that are moving towards Open Banking and proposes a framework for categorising them based on four pillars:

• Geographical Scope

• Level of Regulation

• Stage of Development

• Degree of Standardisation

Geographical Scope

Open Banking is global, however not all regions follow the same standards or regulation. While some nations have decided to follow the same approach others have chosen to go out on their own and launch individual programs that suit their nations’ needs. Geographical scope highlights whether an Open Banking initiative was introduced at an:

• Industry level

  Initiatives that are introduced by banks or associations without government involvement e.g. Open Technology Foundation in Nigeria

• National level

  Initiatives introduced by a countries governing body impacting national banks e.g. CDR in Australia

• International level

  Regulation and initiatives that span country borders e.g. PSD2 in the European Union.

Level of Regulation

Depending on the country and the type of regulation, banks may or may not be obligated to implement Open Banking initiatives. In some instances regulators are enforcing adoption, while in others they are allowing the banks themselves to decide whether or not they implement the recommended Open Banking standards. Open Banking initiatives can be:

• • Unregulated

    Banks can choose to implement unregulated industry standards but are not obliged to.

  • Organic

    Banks are encouraged by the government to implement Open Banking standards, but it is not enforced.

  • Mandatory

    Banks must implement the relevant Open Banking standards.

Stage of Development

The countries included in this report are at varying stages of development and implementation of Open Banking initiatives. Some countries are at the beginning of their journey and may still be investigating the benefits while in other countries they may be in the process of implementing the standards. We split the countries out into three stages of developement and these include include:

• Emergent

  No finalised standards have been released but work is being done on Open Banking initiatives.

• Transitional

  Standards have been published, but banks are still in the process of implementing them.

• Implemented

  Banks and fintechs are building Open Banking-powered products and services.

Degree of Standardisation

At their core all Open Banking initiatives are a set of standards which banks can use to build their own Open Banking-powered products and services. These standards can vary with some requiring that banks follow them to the letter and others which allow more room for variation on part of the bank. Open Banking standards can be:

• Unstandardised

  Without standards banks and fintechs are able to implement their own standards and initiatives for building and sharing APIs.

• Functional Standards

  When functional standards are available banks and fintechs can use these as a guide on how to implement Open Banking. Functional standards cover areas like timeline for implementation, types of data to be shared and types of providers to share data with etc. but they do not provide technical standards.

• Technical Standards

  Banks and fintechs are provided with predefined technical standards with the aim of building a unified way of working throughout the market.

Report Summary

Only one Open Banking initiative spans international borders

The majority of Open Banking initiatives have been introduced at a national or an industry level. The European Union, which launched PSD2 to encourage free markets, covers all of its member states and is the only initiative that crosses borders.  While no other regulation is being implemented internationally, a number of countries, including Argentina and South Africa, are adopting a version of the UK’s Open Banking technical standards.

44% of nations have introduced mandatory regulation

44% of nations have chosen to introduce mandatory Open Banking regulation, which obliges the leading banks in a country to comply with the regulation. While a mandatory approach has encouraged the adoption and spread of Open Banking, it is interesting to note that some nations such as China and Singapore who have not enforced adoption but rather allowed a market-driven approach are farther along in their Open Banking journey than others.

70% of countries are in the transitional stage of development

Of all the 23 countries included in this report, 70% are in the transitional stage, where the standards have been introduced by government or industry bodies and it is now up to banks and fintechs to implement them. For those countries in the implemented stage (26%), the first benefits are starting to be seen with customers gaining more control over their data and better insights into their financial lives.

39% of nations have provided functional standards

39% of nations included here have provided technical standards for the implementation of Open Banking. 44% have introduced functional standards, which allow banks in those markets to build their own technical specifications. While it may benefit the banking industry to have a number of standards to trial until finding the correct option, by not having a standardised technical approach fintechs will have to adhere to each bank’s technical specs rather than a blanket technical approach that would save them time and money.

Download the full guide here to see each a country-by-country breakdown of initiatives or go to our interactive page for a quick overview.

The post Global Open Banking 2.0 appeared first on Moneythor.

In Europe and the UK, its effect has been most notable due to the early introduction of mandatory regulation there. In line with Europe’s PSD2 regulation, all financial institutions in the region are required to share customer data with third party providers through an API infrastructure. With secure access to this data, third parties can use it to provide personalised and customised experiences to customers that carve out competitive advantage for newcomers in an industry that is notorious for its high barriers to entry.

It is no surprise that after its introduction in Europe that other countries quickly followed suit. Among the advantages of promoting an Open Banking approach, it enhances the customer experience, encourages collaboration, accelerates the time to market for financial products and services, and builds an API-rich economy.

Open Banking in Singapore

The Monetary Authority of Singapore (MAS) often leads the way when it comes to driving forward the financial services industry in Asia and beyond. It is also a contributing player in why the country’s leading banks are regularly recognised as the best in the world. MAS has been encouraging banks to adopt Application Programming Interfaces (APIs) since 2016 with the development of a financial industry API playbook, but it has yet to publicly release Open Banking style measures. Amidst intense industry discussions on the benefits of establishing a financial data portability regime, a flavour of Open Banking is now expected to be rolled out in Singapore in some capacity by the end of 2020.

While all has yet to be confirmed, what is known so far is that this initial Singaporean version of Open Banking will be named Financial Planning Digital Services (FPDS) and, similarly to its European cousin, will aim at facilitating data portability with a secure API framework underneath giving consumers greater access to and control over their own financial data. As a result, similar impacts are expected on the market such as increased innovation and competition between financial services providers, as well as better financial planning assistance for consumers.

The proposed consent mechanism for the sharing of data will be facilitated using SingPass, the single sign-on service already used by all residents to access the Government e-services. Consumers can then grant access to the financial institutions of their choosing to share not only information about their bank accounts and credit cards but also information about their pension contributions, social security savings and government housing scheme payments.

The exact date of launch of FPDS has not been published but it is expected to be rolled out in two main phases, the first phase will include banks and government bodies and with the second phase roll out, it will incorporate insurers and wealth management companies too. PSD2 currently only shares financial and bank account information and has yet to incorporate other industries such as insurance, but it is much broader and ambitious than FPDS when it comes to the parties able to access consumers’ data. Incumbent financial institutions are the only parties given access to FPDS with currently no sign of any new type of authorised institutions being introduced, akin to the Third Party Providers (TPPs) including the Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs) roles used by fintech firms in Europe.

Unlike PSD2 which promotes the use of APIs to retrieve account information from various sources on an ongoing timely basis with full transaction details, initial plans for FPDS suggest that information sharing will take place on a monthly basis and will only include high-level information such as accounts & cards balance summaries.

Although there are some clear similarities between the proposed FPDS scheme and other international Open Banking initiatives like PSD2, there are also some big differences. Regardless, there are a still a number of best practices that can be applied from Europe that will help Singaporean banks to take advantage of Open Banking principles and create value for customers.

Data aggregation can create competitive advantage

When applied correctly, Open Banking can create detailed and enhanced financial overviews that help customers with their financial planning. Building a base of financial literate and secure customers is in the best interest of banks, as these customers tend to take on more financial products than those who are not as financially in-the-know.

In Europe, Max, the personal assistant and concierge service by Credit Mutuel Arkea which is powered by the Moneythor engine, leverages Open Banking/PSD2 capabilities to aggregate and categorise data from multiple bank accounts giving customers a holistic view of their finances. This provides the bank’s customers with a one-stop-shop for understanding their entire financial situation.

In the case of Singapore, the partnership with other government services such as the social security savings scheme (CPF) will give customers an even more detailed view of their financial standing. Singaporean banks should facilitate the aggregation and categorisation of this data within their own digital channels.

Those banks that embrace FPDS early will stand to become the go-to digital financial channel for their customers, edging out the competition and reducing the need for them to log into a number of separate applications.

Open Banking creates increased opportunities for personalisation

Once aggregated and categorised, data should then be used to augment and personalise the products and services that are offered to customers. The data that will be available to Singaporean banks thanks to FPDS will give them a detailed view of a customer’s financial standing that they have not had access to before. They should use this data to the advantage of their customers by providing them with services that are highly personalised, enhance their financial lives and improve the bank/customer relationship.

Platform banking speeds up time-to-market

A final learning from Europe is that banks cannot do it alone and not in the timeframes desired. For our European clients and other European banks, the opportunities thanks to Open Banking have been significant. However, transforming their current digital channels into ecosystems of personalised financial products and services is no mean feat. In order to overcome this hurdle, many banks are looking at specialist providers to help them roll out personalised and scalable services with a quicker time-to-market.

Banks that embrace this ‘platform’ approach will have the benefit of improved customer experiences, increased digital engagement and higher revenues thanks to the introduction of new products and services.

Importantly for banks in Singapore and a lesson learned from the mistake of some European institutions which had originally looked at PSD2 merely as a regulatory requirement, FPDS should not be seen as a tick-the-box exercise but as an opportunity to improve the products and services that are offered to Singaporean consumers with a focus on financial wellness principles, as it gives banks a level of information that they have not had in the past and the chance to build lasting digital relationships.

Although FPDS is in its early stages, banks need to accelerate their preparation ahead of its launch now. With our home base in Singapore and our ongoing work with some of Singapore’s leading banks, the Moneythor engine already supports multi-bank data aggregation natively and has proven experience in Europe of Open Banking initiatives. We will continue to update our blog and newsletter as more information about FPDS emerges, but if you would like to find out more about our Open Banking experience, please feel free to contact us here.
 

Update: MAS launched SGFindex in December 2020. Read more about it here.

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It is not just banks who see the growth potential of the SME market; fintechs such as Sage and iZettle are offering SME credit and other banking services on top of their respective accounting and payments solutions, challenger banks such as Starling and OakNorth have launched SME-focussed products over the last couple of years and in Singapore, Hong Kong and Malaysia digital banks are emerging with the support of new licensing programmes with the specific goal of serving the SME market.

However, even with all this taken into account, SMEs continue to be an underserved market that come up against numerous challenges when it comes to banking. To drive the growth and revenues that they want, banks need to rethink the products and services that they are offering SMEs and redesign the processes and tools for their delivery.

Open Banking which has come to the fore as the catalyst for bank and fintech cooperation has been shaking up the retail banking sector for some time and the advantages for retail customers are clear, but how can Open Banking help banks to better serve the SME market?

Open Banking encourages (or in some cases forces) traditional banks to open up the transactional data store they have and share it with third parties and fintechs to provide customers with data-driven and personalised experiences, products and services.

How can Open Banking help banks to serve the SME market?

• Improving credit infrastructure

• Providing real-time cashflow management

• Enhancing product offerings.

• Improving Credit Infrastructure

Access to credit is one of the biggest hurdles for SME businesses. Risk-averse banks have been reluctant to give out credit to SMEs since the 2008 global recession, and a similar situation is now expected with the looming recession fuelled by the COVID-19 pandemic. What’s more, banks have limited information to make decisions about the creditworthiness of SME customers and so require statements and credit scores from them to prove their financial stability. Organising this information can be time-consuming and difficult for cash-strapped SMEs and for the banks.

Open Banking can address this problem by giving banks access to an enhanced aggregated view of all the SME’s accounts and credit history from multiple banks and other sources, allowing them to make better and less risky decisions in a shorter time and with minimal effort.

New credit comparison tools will also become available thanks to Open Banking that allow SMEs to compare the credit that is available to them, enabling them to make the best financial decision for their business.

• Real-time Cashflow Management

For SME business owners, their days are busy, and their plates are full. Keeping a close record of income and expenses can be time consuming and at times can fall down the priority list of things to do, leaving SME businesses in danger of running into cash flow problems.

Account aggregation coupled with real-time forecasting tools give SME business owners a holistic view of their finances from multiple accounts, enabling them to manage their cashflow effectively and preventing future cashflow issues from arising.

• Enhanced Product offerings

Having access to SMEs’ full account information, spending patterns and activities can enable banks to offer deals and personalised product offerings that improve the customer experience and help SMEs to manage their finances better.

Connecting with and offering third party products to SMEs through the banks’ digital channels not only connects SMEs with suitable products and offers but can also function as a new revenue stream for the banks, increase customer loyalty and build strong relationships with innovative external providers.

The SME market is a huge growth opportunity for traditional and new banking players. In order to stay competitive traditional banks will need to find new ways to support their SME base. By taking advantage of the benefits of Open Banking, these players can provide innovative and personalised products and services with less risk and increased revenue opportunities, all while making the lives of their SME customers easier.

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New players such as challenger banks and fintechs are taking advantage of Open Banking and attracting customers in the millions. This customer migration has the potential to erode away at an incumbent’s current revenue streams. Business Insider estimates that £6.5 billion of UK incumbent bank’s revenues are under threat of being scooped by fintechs and challenger banks by 2024.

However, if banks change their mindset about Open Banking and see the potential opportunities it brings, it could be the key to creating new revenue streams that lead to greater profits and offset losses. Open Banking has set in motion a move to a new way of banking where banks can monetise areas of their business that previously would have been an internal service or product that drained revenue or offer customers more personalised and profitable customer journeys.

How can banks generate revenue from Open Banking?

• Partner with fintechs

• Sell to fintechs

• Deliver effective marketing campaigns

• Partner with fintechs

Banks that partner with fintechs can create marketplaces and offer fintech services to current customers, giving them a wider choice of new products that improve the end-to-end journey, drive customer engagement and cost very little for the banks to offer. By offering a third parties’ product or service to its customer base, banks can collect a commission or recurring fee from the third-party, injecting fresh revenue into the bank. By partnering with fintechs in this way, banks can avoid losing customers to competition and instead create a fuller offering that keeps customers engaged and drives loyalty.

What’s more, many of these third-party providers have large customer bases of their own. By partnering with third parties, banks can gain access to these potentially new and profitable pools of customers.

• Sell to fintechs

Another option for banks looking to drive revenue from Open Banking is to embrace a more modular way of working or providing Banking-as-a-Service (BaaS), allowing an ecosystem of fintechs and software providers to connect to the bank through open APIs and providing them with certain value-add functionalities and services over and above the mandated functionality imposed by the regulators and charging them a fee for the access.

Banks can grant access to their current functionality such as compliance, regulation and KYC services that would usually be difficult for third parties to get access to and would be time-consuming for them to organise themselves.

• Deliver effective marketing campaigns

Through Open Banking and data aggregation, banks can get an enhanced view of their customers and create detailed and precise customer profiles. This deeper understanding of the individual customer can help banks to position financial products and services where and when people need them. These personalised insights or marketing messages that appear at the right time, in front of the right customer can increase engagement, sales and overall revenue for the bank.

Open Banking is here to stay and for forward-looking banks it represents a big opportunity to introduce new revenue streams, keep current customers, attract new ones and overall help them to stay competitive in increasingly crowded markets.

 
Blog post updated October 2020

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Strong customer authentication or SCA is a new regulatory requirement that forms part of the wider European PSD2 Open Banking regulation. With its introduction, European customers will be required to provide more information when purchasing goods or services online. Currently all that is required is a customer’s card number, CVC digits and at times a 3D secure code or similar. SCA will mean further levels of authentication are needed at the time of payment.

A key concept of SCA is two-factor authentication which requires a second level of authentication before a transaction is approved. While many card issuers have implemented a form of two-factor authentication,(for example 3D secure, which requires a password to be entered on a separate webpage after card details have been entered), SCA will require banks to replace the current methods of two-factor authentication and ensure higher levels of security.

The current authentication flow offered by most banks involves a web redirect which provides a poor user experience and is prone to phishing attacks. Under SCA requirements, the updated authentication flow should include the least amount of additional steps and alternative flows have been suggested that involve either embedded, de-coupled or app-to-app redirect instead of traditional web redirect. SCA will also necessitate that two of the following are provided for a transaction to be authenticated:

• Something you know e.g. a password, PIN or personal fact
• Something you own e.g. mobile phone, wearable or token
• Something you are e.g. fingerprint, facial features or voice patterns

Exemptions to SCA

Not all transactions will be required to adhere to SCA regulation. Low value and low risk transactions will be exempt from introducing SCA processes. For example, any transaction under €30 will not require SCA, nor will transactions where the average number of fraudulent cases is particularly low. Recurring payments or subscriptions will also be exempt after the first payment.

Customers will have the option to whitelist certain providers as well, meaning they will not have to provide SCA for every transaction they complete with a whitelisted vendor.

The Good and the Bad of SCA

For merchants the main benefits of introducing SCA are reduced fraud, increased trust amongst customers, smoother processes for customers and more payment options available. In general, it should promote safer online payments and lead to more ecommerce transactions being fulfilled.

However, there are fears that initially SCA will lead to high level of trolley abandonment and payment drop-off. Merchants need to introduce efficient systems to meet the new requirements and manage customers expectations of the payment process to reduce payment drop-off.

When does SCA come into Effect?

SCA was due to come into effect across Europe on September, 14th, 2019, however, due to a lack of readiness amongst payment providers and retailers, The European Banking Authority (EBA) allowed national regulators to grant an extension. On October 17th, 2019, the EBA announced that the new deadline for implementation of SCA is the 31st December 2020.

Blog post updated August 2020

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