New European rules on Strong Customer Authentication (SCA) could block more than one-third of online purchases and cost merchants more than $100 billion in lost sales, according to an analyis by payments consultancy CMSPI.
The consultancy says problems will arise for e-commerce merchants beginning January with the introduction of 3D-Secure Version 2.0, an authentication protocol developed by the major card schemes.
The CMSPI report describes the technology as “relatively new and unproven”, adding "significant unnecessary friction to the online commerce experience.”
With the new security protocol adding between 60 seconds and two minutes to the checkout process, testing shows 25% of 3DS2 transactions are abandoned by consumers, compared with single-digit numbers without the technology.
Overall, as many as 35% of 3DS2 transactions fail to go through, either because they are declined, abandoned by frustrated consumers or because of technical errors. If not corrected, that would amount to €108.1 billion in lost sales based on 2019 sales volume - 100 times the annual amount of card fraud, says CMSPI.
Large retailers with the resources to minimise delays are likely to win customers from smaller retailers that do not, the report says. Small retailers are expected to be the hardest hit, accounting for €69.4 billion of the total compared with €38.7 billion for large merchants.
CMSPI head of approvals and fraud Toby McFarlane comments: “Both merchants and card issuers have clearly been busy with the pandemic and neither have had the time to give this important new technology the attention it requires. Payment security is one of merchants’ top priorities, but they need the time to do this right. This is particularly bad timing because store shutdowns have made retailers rely on online sales for more of their revenue than ever before.”