Strong Customer Authentication Compliance Essentials
Strong Customer Authentication, commonly known as SCA, is one of PSD2’s best-known features, aimed at reducing payment fraud by requiring multiple independent factors to verify a customer’s identity before certain transactions can proceed.
What SCA Requires
SCA generally requires authentication based on at least two of three independent elements: something the customer knows, such as a password or PIN; something the customer possesses, such as a mobile device or hardware token; and something the customer is, such as a fingerprint or facial recognition.
When SCA Applies
SCA generally applies when a payer accesses their payment account online, initiates an electronic payment transaction, or carries out any action through a remote channel that may imply a risk of payment fraud, subject to specific exemptions set out in regulatory technical standards.
Key Exemptions
Certain transactions can qualify for exemptions from SCA, including low-value contactless payments, transactions assessed as low-risk through transaction risk analysis, recurring payments to the same payee after the first has been authenticated, and payments to trusted beneficiaries the customer has added to a whitelist.
Impact on Product Design
SCA compliance is not simply a back-end technical requirement; it directly shapes checkout flows, onboarding journeys and customer experience, meaning payment firms need to involve compliance and product teams together when designing authentication journeys, rather than treating SCA as an afterthought.
Looking Ahead
As the EU’s payments framework evolves under the forthcoming PSD3 and Payment Services Regulation, SCA rules are expected to be refined further, including updates to transaction monitoring and exemption criteria, so firms should keep their authentication frameworks under regular review rather than treating current rules as static.
Enalian advises payment institutions, e-money institutions and fintech businesses on licensing, authorisation and ongoing regulatory compliance in Cyprus. If you are exploring a PSP or EMI licence, or need support with an existing authorisation, our team can help. Get in touch with our team to discuss your specific circumstances.
This article is provided for general informational purposes only and does not constitute legal, tax or regulatory advice. Regulatory requirements are subject to change; readers should seek specific advice on their circumstances before taking action.
