Within the last two weeks, the European payments industry received the (long-expected) opinion paper from the EBA concerning the delayed implementation of Strong Customer Authentication (SCA). As a reminder, the main rationale for SCA was the need to reduce fraudulent transactions in an online environment, and – because cardholders would be strongly authenticated – the number of chargebacks. So if online fraud and online chargebacks are expected to decline why would you invest in a business that specialises in exactly that. And by the way, SCA is not a purely European ‘phenomenon’; there are also similar initiatives in India, Brazil, China and other Asian markets so those expected fraud / chargeback reduction trends are likely to apply in other regions as well.
Despite all that Visa’s acquisition of Verifi does make sense. Verifi is headquartered in the US and processed transactions worth $20bn last year with the aim of optimising dispute resolutions (i.e. the processing of chargebacks). The link-up with Visa will obviously provide Verifi with significant international scale but the benefits for Visa have multiple dimensions:
- Consumer payment needs are increasingly cross-channel and payment processing as well as fraud prevention, fraud management and chargeback handling are becoming more complex. Visa’s Cardinal Commerce business is already a global leader in 3DS and an integrated proposition with Verifi’s technology will provide a unique value proposition in the market
- Yes, SCA will have an impact in many markets but to date, the US is not one of them so there continues to be strong market demand for a holistic payment protection offering in North America
- Even in SCA-regulated markets, there will be a range of transaction types that require the implementation of risk management tools. For example, so-called ‘one-leg-out transactions’ whereby for example a US cardholder makes a purchase on a European website are out-of-scope of SCA and will require the application of risk management products. There are also transactions for which SCA exemption rules cannot be applied e.g. because fraud levels are above the thresholds that are set in the regulation
In other words, SCA is a great regulatory initiative aimed at addressing an important issue with e-commerce payments, but it will, for the foreseeable future, not negate the need for sophisticated fraud prevention. An integrated offering that combines Visa’s CyberSource (payment gateway) with Cardinal Commerce (gateway, authentication and 3DS) and Verifi (chargeback handling) will be a very competitive and appealing solution for merchants and acquirers.
The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).