Published: January 18, 2021
As corporations pivot towards digital business models to help weather the Covid-19 pandemic, regulation continues to shape the European payments industry. Treasurers must prepare for the changes that Strong Customer Authentication brings, while embracing the latest e-commerce strategies. Sara Savidge, Managing Director, and Colm O’Monacháin, Vice President, J.P. Morgan Wholesale Payments, explain the key steps for treasury functions to take – and the pitfalls to avoid.
Business operations have been turned upside down as the Covid-19 pandemic has sent countries across the globe into lockdown. Physical purchases of goods and services have waned, while digital business models and e-commerce have risen steadily. In fact, 35% of people globally are now grocery shopping online or by phone as a result of Covid-19 and 45% are increasingly using their mobiles as a shopping channel 1.
Of course, not all industry sectors have enjoyed a boom. According to J.P. Morgan’s 2020 E-Commerce Payments Trends – Global Insights Report2, global e-commerce travel transaction volumes were down 91% year-on-year in April 2020, with lockdown taking its toll. Nevertheless, food, home entertainment and subscription services are underpinning growth.
Alongside the momentum generated by Covid-19, the ongoing success of direct-to-customer business models and the rise of advanced app-based e-commerce3 are also driving online sales. Sara Savidge, Managing Director, J.P. Morgan Wholesale Payments, advises: “To succeed in the new era of global e-commerce, organisations must quickly shift to meet the growing demands of customers by improving the online experience, making sure all relevant payment types are available, and ensuring speedy and simple digital interaction – especially during checkout.”
With this in mind, treasurers must explore how to drive efficiency in the payments process. Savidge elaborates: “Providing a tailored, well thought-out payment suite is essential for merchants to succeed in this new environment. Treasurers must be prepared to offer frictionless payment experiences across cards, digital wallets and direct bank transfers. And these services must be provided in the most efficient way possible – which, from a treasurer’s perspective, means managing everything from the foreign exchange [FX] component to ensuring a streamlined back-office process around each payment.”
Another treasury imperative is cybersecurity. “The pandemic has opened up new opportunities for fraudsters and cybercriminals. Now more than ever, treasury and finance functions must look for ways to ensure transactions are as robust as possible,” adds Savidge. While this applies across the globe, treasurers in Europe have even more reason to pay attention – namely the Strong Customer Authentication (SCA) Regulation.
For those unfamiliar with SCA, it is a core tenet of the EU’s Second Payment Services Directive (PSD2). Coming into force across the European Economic Area (EEA) on 1 January 2021, and 15 September 2021 in the UK, SCA aims to reduce rising levels of e-commerce fraud. The premise of the regulation is to introduce two-step authentication for any online purchase over €30 in the EU.
As Colm O’Monacháin, Vice President, J.P. Morgan Wholesale Payments, explains: “SCA requires companies to add an extra layer of protection to the payment authentication process. Although there are some exceptions to SCA, more or less anyone making a purchase over the €30 threshold must verify their identity based on a choice of two out of three independent factors.” These are:
Although adding two-factor security measures might seem to contradict the desire for a speedy and seamless customer experience, the need for such rigour is undisputed. Customers will be able to transact more safely and merchants should see higher approval rates and lower instances of fraud. O’Monacháin also believes that SCA is a way for merchants to deliver a competitive edge by “providing everything that is expected in terms of security but also offering innovation in a frictionless way by enabling the customer to easily authenticate themselves”.
He expects more innovation in this space from banks and merchants alike, in particular in the area of biometrics. “This could involve using a fingerprint via your banking app, for example, as this is an easy way to conduct the necessary fraud checks while making it frictionless for the customer.” It’s important that banks and merchants innovate across all channels, though, not just one or two. “There are so many different ways of making a payment – from bank transfers to digital wallets – and all of those channels have to be SCA-ready.”
What’s more, e-commerce merchants must be compliant by the end of 2020, which leaves little time to prepare. The good news is that there are some simple steps merchants can take to quickly move towards the goalposts. The most critical aspect, says O’Monacháin, is being 3D Secure-ready. “Ideally, merchants will already have chosen a provider for this service and started to integrate and test it. This way, when the regulation comes into play at the start of January 2021, it should all work seamlessly – meaning that merchants should not experience any degradation in authorisations and there should be no down time for customers.”
And for those merchants not quite there yet on the 3D Secure front, there is still a small window of opportunity before the deadline hits. “Working with a knowledgeable partner will be critical in making a smooth transition in a short period of time,” adds Savidge.
While much of the ‘plumbing’ around SCA will happen outside of the treasury function, there is still an important role for treasurers to play. Savidge explains: “Knowledge is power. There is a huge amount that treasurers can do to garner expertise around SCA and support the wider organisation’s transition to this new regulatory environment. Leveraging partnerships with other functions within the corporate will be important, as will working with trusted partners and suppliers in the financial industry.”
She encourages treasurers to challenge their banking partners and suppliers to ensure that they are truly SCA-ready, and doing all they can to help the treasurer be ahead of the curve. “SCA is an important piece of the puzzle, but in tandem with regulatory developments, treasurers also need to prepare for the next level of evolution in the digital transformation of e-commerce,” comments Savidge. “A partner that is solving issues here and now, while always looking ahead will be invaluable,” she says. Meanwhile, O’Monacháin calls for positivity amid the change. “The benefits of SCA will, in the long term, significantly outweigh the challenges of transitioning. Reduction in fraud is a ‘win’ for all parties and ultimately SCA provides an opportunity to strengthen relationships between customers and merchants. The innovation that SCA will drive is also exciting and, in combination with the latest developments in e-commerce, will lead to an even more dynamic marketplace in 2021.”
Understanding developments across the region is key for a successful implementation; our team is available to guide, advise and support our merchant clients during this transition. Contact your J.P. Morgan representative to find out more.
This article is based on a podcast recorded in October 2020. Listen to the full discussion to find out more.
Sara Savidge
Managing Director, Wholesale Payments, J.P. Morgan
Sara Savidge joined J.P. Morgan in 2020 and is responsible for merchant services’ international growth and development.
Prior to her move to J.P. Morgan, Savidge was the Chief Revenue Officer at TransferMate Global Payments and previously held roles at Barclays, Royal Bank of Scotland and First Data Corporation, now Fiserv.
Regarded as a thought leader, Savidge is also an award-winning passionate supporter of equality, diversity and inclusion and is recognised throughout the industry for her commitment to the advancement of women.
Notes
1 Source: pwc.com, September 2020. ‘The consumer transformed: Global Consumer Insights Survey 2020.’ Accessed November 2020.
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