Bank Regulation

UK Finance On How COVID-19-Related SCA Shifts Are Changing The Payments Landscape

The pandemic has thrown daily operations for merchants in the EU and the U.K. into flux.

Retailers have had to swiftly adapt to markets where online transactions have ballooned exponentially. Even customers still shopping in stores are desiring digital payment methods such as contactless cards that allow them to pay without using cash or checks that may carry traces of the virus.

Financial regulators have been responding to this rise in online and contactless payment use by making careful changes to the regulations they already have in place for these methods, such as Strong Customer Authentication (SCA), according to the trade association for U.K. financial and payment services UK Finance.

“The [financial] industry has acted quickly to support both consumers and retailers as much as possible through the COVID-19 crisis,” UK Finance said in a recent interview with PYMNTS. “This includes ensuring that any large-scale changes such as SCA do not impact retailers’ day-to-day business, allowing them to focus on what they need to at this difficult time.”

These adjustments to SCA are designed to mitigate COVID-19’s effects, but they could also have a more far-reaching impact on open banking. The shifts to SCA payment limits as well as its deadline are showing regulators how the rule is currently working for merchants and consumers and suggesting how it could indicate broader, more complex upgrades to open banking in the future.

Regulators Jump to Tailor SCA for COVID-19

Merchant concerns over SCA’s impact on their customer conversion rates did not begin with the COVID-19 pandemic. The regulation, a part of PSD2, was a strong source of confusion and concern for many merchants before and even after its purported Sept. 14, 2019, deadline. Many retailers questioned what the SCA’s contactless payment authentication limit meant for them and if this rule would lead to more customers abandoning purchases rather than submitting to more stringent authentication.

These worries resurfaced in 2020 following the virus’s initial outbreaks, and regulators such as the U.K.’s Financial Conduct Authority (FCA) took steps to quickly assuage them, according to UK Finance. The FCA announced at the end of April that U.K. merchants had additional time to become fully compliant with the rule and pushed the deadline back to Sept. 14, 2021.

“SCA is one of a number of important tools used by the [financial] industry to protect customers, helping them to keep safe when they shop online,” UK Finance said. “The recent announcement from the FCA gives the eCommerce and payments industries an additional six months to roll out SCA, which will help ensure the migration to SCA results in the best outcomes for consumers, delivering both convenience and security.”

The FCA’s response occurred near simultaneously with the European Banking Authority’s (EBA’s) decision to upgrade the contactless payment limit to 50 euros ($54). This move was intended to help merchants process transactions at higher speeds as contactless payment apps and cards have recently been used more often in the EU and U.K. The long-term implications of both decisions need to be examined more closely to determine how regulations — and merchants’ actions — can advance in the future.

SCA Changes Could Lead to Long-Term Payment Shifts

Regulators are also keeping an eye on how consumers prefer to pay, with the use of alternative payment methods rising in the EU and U.K. Consumers spent 80.5 billion pounds ($98.5 billion) on contactless payments last year, a 16 percent jump from 2018, according to UK Finance.

“The decision to raise the contactless payment limit … has been taken following consultation between the retail sector and the banking and finance industry and follows similar increases in several other European countries,” said UK Finance. “The new limit is being introduced in recognition of the growing popularity of contactless payments among consumers.”

The new limit came into effect on April 1. Regulators’ decisions here show that they are aware of this growth. More importantly, for merchants, the decisions mean regulators are taking a closer look at what the SCA regulation means for daily business operations. The COVID-19 pandemic has therefore highlighted some of the stumbling blocks merchants are still facing, including the need to support rising online payment use and safeguard from threats that continue to change near-annually.

Both regulators and merchants will need to reexamine the landscape as impacted by COVID-19 to successfully innovate payments for the future.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.