Report: Are firms ready for strong customer authentication regulation?


From the start of 2021, payments in Europe will embark on a new era as the Strong Customer Authentication (SCA) requirements of the Payments Services Directive II come into force. 

This represents a significant step in the fight against card fraud but is also one of the most significant changes to online payments in recent memory. The new payments rules are set to be introduced at a time when the travel industry is already working hard to mitigate the impact of COVID-19.

SCA mandates that the vast majority of online payments made in the European Economic Area (EEA) be subject to two-factor authentication, for example, entering a one-time passcode sent to your phone alongside payment card details. 

This seemingly minor change has significant implications in travel where bookings often involve multiple merchants in a single transaction and there are many players in the distribution chain that must each play a role in making SCA checks happen. 

It’s against this backdrop that travel technology company, Amadeus, has conducted research to understand the readiness of the industry for SCA, as well as developing an action plan to help travel players prepare for this change.

According to the research, with respondents from airlines, hotels and travel agencies, only one third of travel firms expect to be ready to apply SCA checks across all sales channels in time for the 31st December deadline, with a further quarter likely to be ready in the first half of 2021. It appears that some travel firms may have been caught out as a significant majority had expected SCA to be delayed still further, perhaps due to the impact caused by COVID-19.  

When asked about the biggest challenges to SCA readiness, 65% of firms cited the COVID-19 pandemic and 55% a lack of internal resources. On average, research suggests the pandemic has set SCA programs back by around six months in travel. This appears to have been a substantial blow when the industry was already struggling to meet the new requirements. 

However, there remain reasons for optimism. A great deal of progress has been made recently:  with the new 3DS 2 authentication protocol now available, the industry can at last access the function rich technology it needs to deliver SCA in a wide variety of scenarios.  

The Strong Customer Authentication action plan from Amadeus makes a number of recommendations for travel payments professionals:

Map specific payment flows: The starting point for SCA in travel is to understand and map different payment flows, including payments and technical intermediaries that will likely be required to upgrade systems to make SCA happen.

Migrate to 3DS 2: For e-Commerce payments it’s recommended that travel companies move their direct channels to the latest industry authentication protocol, 3DS 2, which helps prevent fraud whilst protecting the customer experience. This is particularly important for travel agents and suppliers involved in ‘multi-merchant’ bookings like package holidays, where 3DS 2 uses ‘dynamic linking’ to significantly improve authentication.

Understand use cases: Planning for SCA in travel requires travel agents and suppliers to plot their specific use cases in advance to facilitate key decision making, such as whether a travel agent should become the ‘merchant of record’ or pass the payment to the travel supplier to process.  

Plan for Merchant Initiated Transactions (MITs): These transactions are critical in travel, allowing the traveller’s card to be charged for cancellations, hotel mini bars or pay by installment plans when the traveler isn’t present. SCA requires travel suppliers and travel agents to present clear T&Cs at the time of booking as well as ensuring proof of SCA so MITs can be initiated later in the travel experience.

Collaborate to benefit from exemptions: There are a number of exemptions that promise to ease the impact of SCA in travel, for example, the Secure Corporate Payment exemption. Travel payments professionals will need to collaborate with payments, technology and distribution partners to maximize the application of exemptions. 

Two thirds of the travel payment respondents to our survey believe that SCA will increase abandonment, equating to lost sales.  So, the message is clear: travel players still have time to work together to prepare for SCA’s introduction across the European Economic Area on 31st December. 

Download the new SCA action plan for travel report here.