E-Commerce Is About To Get More Complicated In Europe

As e-commerce rises globally, consumers are utilizing electronic payment methods more frequently to execute purchases. In 2019, global consumers will spend an estimated $6.77 trillion on goods and services bought online, according to Euromonitor International. This is double the digital commerce spend from just five years ago.

Card not present fraud has slowly risen alongside this e-commerce boom. Mastercard estimates the fraud rate for online transactions is about 10 times what they see for in-store transactions. The European Commission hopes to reduce this fraud through a new ruling that will provide greater authentication of electronic transactions. In Europe, nearly 10% of all consumer payment transactions are executed through a digital device, according to Euromonitor International.

Strong Customer Authentication (SCA), which is a new rule set to come into effect on Sept. 14 across Europe, will change how European customers authenticate payments. This rule is part of the broader second Payments Service Directive (PSD2), a suite of European regulations that is impacting the payment experience from the way European consumers pay online to what information they see when making a payment.

Under the SCA ruling, merchants, banks and payment processors will have to implement two-factor verification on electronic transactions over €30. Such transactions in the future will require two of three authentication methods, including personal identification, such as a fingerprint, something the consumer owns, such as a smartphone, or something the consumer knows, such as a password.

“I think it will provide more trust and confidence because of the two-factor authentication,” Gilberto Caldart, president of international markets for Mastercard, said in an interview with Euromonitor International at Money 20/20 Europe. “You might have to accommodate at the beginning because the first time may not be seamless or intuitive.”

If customers don’t approve a transaction by entering a code via text message from their banks or scanning their fingerprint on their mobile device, they may not be able to make the purchase. Industry players have voiced their concerns, saying that these more stringent rules could increase the friction of the e-commerce checkout experience, thus leading consumers to potentially abort or switch to other merchants or issuers in order to execute the desired purchase.

“Merchants have done everything to optimize the consumer journey over the years and now suddenly this regulation will cause more friction,” Charles Damen, senior vice president of payments strategy for payment processor Worldpay, said in an interview with Euromonitor International at Money20/20 Europe. “I do think there will be chaos initially. What has not happened enough is that both issuers and certain merchants have not really communicated about the impact to their consumers.”   

A survey commissioned by Stripe found that Europe could lose €57 billion in economic activity in the first year after the rules take effect with this expected to most impact small businesses. Andre Lyver, general manager of financial solutions for the e-commerce company Shopify, says awareness of the forthcoming SCA regulation among the 820,000 merchants on its marketplace platform remains low.

Within the last week, the European Payment Service Providers for Merchants (EPSM) trade body called for an 18-month delay on the ruling, saying that the industry is not ready and warning that it could have an adverse effect on the flow of online transactions in Europe. The trade body representing several European payment companies has asked for an additional 18-month time frame for “standard applications” of the rules and a 36-month extension for “challenging applications” such as those in the travel and hospitality sectors. The industry group says this would allow enough time to harmonize the approach and address unanswered questions to avoid significant market disruptions.

Last month European regulators said they could not legally change the deadline but would allow additional time for national authorities to work with payment service providers, e-commerce merchants, consumers and other stakeholders who may need additional time to prepare.

Regardless of the potential delay in implementation, the e-commerce checkout experience will become more complicated in Europe very soon in the name of reducing rising fraud rates in the e-commerce era. Depending upon how well the two-factor authentication does in meeting that objective, it is possible this regulation might be replicated outside of Europe as well.

Source: Forbes.com

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