In the context of eCommerce, strong customer authentication (SCA) refers to the steps merchants need to put in place to confirm that the person making a purchase is indeed the rightful beneficiary of the bank account from which the funds are being transferred.
In practice, SCA usually means a merchant needs to verify a customer at checkout according to the principles of the 3DS2 multi-factor authentication protocol.
In the European Union, the legal mandate for merchants to enforce 3DS2 authentication into their checkout flows went into effect in 2020, and since March this year the U.K. has made it mandatory for merchants to implement 3DS2.
And with Visa and Mastercard both set to discontinue support for the older 3DS1 from October, retailers that have yet to update their checkout systems are likely to find themselves sidelined from most modern payment methods.
Against that backdrop of evolving SCA requirements, U.K.-based FinTech unicorn Checkout.com last week announced major upgrades to its authentication solution.
The updates will give merchants greater control over their authentication strategy using a suite of machine learning (ML) tools that continuously assess customer data and enable retailers to enforce extra layers of security and identity validation.
Upon unveiling the latest upgrade to its payment solution, Checkout.com also took the opportunity to comment on its recent acquisition of the French artificial intelligence (AI) startup Ubble.
Ubble has built real-time video recognition software for customer authentication, protecting consumers against identity theft and shielding businesses from fraud, while helping them comply with know your customer (KYC) regulations.
In a statement announcing the new updates, Meron Colbeci, chief product officer at Checkout.com, said that “identity verification will be critical for preventing fraud and protecting both merchants and customers as the digital economy continues to grow. We are excited to integrate this offering for our merchants.”
SCA and Frictionless Payments
What’s interesting about the recent announcement from Checkout.com is that it depicts SCA not as a compliance issue, or even purely as a means of preventing fraud. Instead, the company paints SCA as a matter of “revenue optimization.”
The updates to Checkout.com’s authentication solution therefore imply that AI-powered SCA is as much about elevating the customer experience as it is about preventing identity fraud.
And Checkout.com is not alone in seeing the wide-reaching opportunities of applying AI to the authentication challenge.
In an interview published in the latest PYMNTS Behavioral Analytics Tracker, Roger Lester, account director at Featurespace, observed how the very same behavioral analytics techniques that are being used to alert banks to fraudulent transactions can also be used to smooth over friction in the customer authentication process.
Read the report: PYMNTS Behavioral Analytics Tracker August 2022
“I think AI behavioral analytics is definitely the way forward,” Lester said. “I have seen personally how much of a benefit that brings to everybody — the banks, their customers, the merchants, the whole industry in general.”
Of course, the need for SCA is just one challenge for online retailers. Another is the sheer variety of payment digital wallets and online methods out there.
As Bolt CEO Maju Kuruvilla recently told PYMNTS’ Karen Webster, although buy buttons from the likes of Shopify and PayPal have gone a long way toward providing a universal one-click checkout experience for eCommerce, these solutions are tied to their own ecosystems, and integrating them with other payment options can be challenging.
He said Bolt has built “a simple one-click checkout that works across all the different brands and all the different surfaces,” calling the solution an ecosystem agnostic approach to payments.
Like Checkout.com, Bolt’s platform uses ML to give merchants greater control over their checkout experience, streamlining the customer experience and fighting fraud at the same time.
The two payment gateways also share an emphasis on interoperability and customization.
For Bolt, this means the ability to include as many or as few buy buttons as needed without needing to work through a dozen different APIs.
For Checkout.com, the new authentication solution has been built as a standalone, platform-agnostic module. This means that it can be used as part of the full Checkout.com tech stack or integrated into a merchant’s existing checkout system no matter which other payment processors it uses.
Unlike the closed authentication solutions associated with the buy button checkout model, the more open-ended systems being built by Bolt and Checkout.com have one major advantage for merchants.
They get to maintain control over customer data and leverage it for their own benefit. In fact, customizable authentication solutions can give retailers greater access to customer data which can in turn be fed back into ML algorithms, optimizing revenues and further enhancing the checkout experience.
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