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SCA EXEMPTIONS ARE A MERCHANT’S BEST FRIEND, BUT THEY DON’T COME WITHOUT COMPLICATIONS

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Shagun Varshney, Product Manager at Signifyd

 

When it comes to online commerce, much of Europe is living in a new payment regulation era — and the UK will soon follow.

It’s an era of two-factor authentication, exemptions, step-ups, transaction legs that are either in or out — and a more secure ecommerce shopping experience for consumers. Polling and industry anecdotes indicate that for many, SCA, which stands for Strong Customer Authentication, might as well mean Something Causing Anxiety. Merchants and consumers know something is changing, but exactly what, for whom and when, well, that’s a little unclear.

But there are ways that UK merchants and brands can embrace SCA by 14 September, the date on which the regulation will be fully enforced.

A quick refresher: SCA is required under the sweeping digital payment regulation known as PSD2. It is already being enforced through much of Europe. It is meant to better secure online checkout by requiring that shoppers be authenticated by two of three methods: something the user knows (such as a one-time passcode), something the user has (such as a mobile device) and something the user is (such as a fingerprint, facial recognition, typing behaviour).

The key to getting SCA right is to conduct the required two-factor identification without adding inconvenience to the checkout process. And that starts with understanding the exemptions and exclusions contained in the requirement and how those elements best apply to your particular business. Wisely deploying exemptions will allow a significant percentage of transactions to be exempted from the regulation — under the right conditions.

As you’ve probably guessed, establishing those conditions has become more important than ever. It’s also important to note that while exemptions and exclusions, which we’ll get to shortly, benefit merchants and their customers, control over whether they are available to a merchant is largely in the hands of a merchant’s payment service provider or a cardholder’s issuing bank.

 

In general exemptions — and their close cousins, exclusions — are available when an order meets certain conditions:

  • The order is low risk and low value.
  • The merchant and its bank have maintained a low fraud rate and the transaction meets certain value limits.
  • The transaction is considered “out of scope.” The list for these exclusions includes phone or email orders, prepaid card transactions and transactions when the acquiring bank or the issuing bank are outside the European Economic Area — or “one leg out transactions.

 

One other exemption is available, but a consumer’s bank must agree to allow it in order for it to be applied. It’s called the “Trusted Beneficiary” exemption. It can be applied when a consumer expressly tells the bank that issued their credit card that they don’t want extra scrutiny applied when they are buying from specific merchants. Again, the issuing bank can refuse to allow the exemption.

Similar to exemptions, “out of scope” transactions can also be processed without SCA. In some instances SCA simply does not apply. Think phone or email orders, prepaid card transactions and transactions when the acquiring bank or the issuing bank are outside the European Economic Area (this is where the “one leg out” phase is used). In the case of a merchant-initiated transaction, a subscription for instance, SCA needs to be performed only once to authenticate the buyer.

Visa, among others, has provided a specific list of exemptions and exclusions.

It becomes evident, scouring the Visa list, that while helpful, exemptions are also limited. Consider low-value transactions for instance. It’s great that transactions below  €30 can bypass SCA. But what if you sell jewellery, luxury watches, electronics, high fashion, home goods, sporting goods, groceries, auto parts or sell in any of the nearly limitless verticals that offer products or groups of products upon which consumers typically spend more than €30 on?

Oh and there is a catch: Even low value transactions need to undergo SCA periodically — every five transactions under €30 must undergo SCA, as must an order once the cumulative value of low-value transaction reaches €100.

Or consider allow-listing. First off, a consumer needs to be aware there is such a thing. A merchant might add a notice at checkout suggesting, “If you like shopping with us, ask your issuing bank to allow-list our store.” All of which leaves a consumer saying, “Ask my what to do what now?”

And even if consumer consciousness-raising is a success, think about the bank that issued the consumer’s credit card. By agreeing to allow-list a merchant, the bank takes on liability for any fraudulent orders. So in one stroke, the bank allows the order to bypass increased scrutiny and agrees to be on the hook for orders that are not legitimate. That’s not a lot of incentive, to put it mildly.

None of which is to say that exemptions should be ignored. Exemptions are a powerful way to provide a seamless experience for customers. When an exemption is approved, the customer doesn’t have to worry about the transaction being stepped up by requiring two of the three SCA authentication methods. And so, retailers want to be in a position to take advantage of exemptions.

One thing that quickly becomes obvious when planning a robust exemption and exclusion strategy is that the starting point for taking advantage of SCA exemptions is to ensure that your enterprise is a solid citizen when it comes to preventing fraudulent sales. Take the most obvious case: In order to take full advantage of the low-risk transaction exemption, a merchant needs to keep its fraud rate below an exceedingly low .01%. That clears the way for purchases under €500. Exemptions for purchases under €250 and under €100 are also available for merchants with fraud rates of .06% and .13% respectively.

It’s important, then, to include a powerful fraud protection solution in your overall SCA strategy. A low fraud rate is vital to securing exemptions and exemptions are vital to producing a top-flight customer experience.

Embracing a modern machine-learning fraud solution that sifts fraudulent from legitimate orders in an instant while seamlessly scaling does far more for a merchant than simply ensuring it can use exemptions. Yes, doing away with SCA is one of the best things about exemptions, but it is also one of the worst things about exemptions. Sure, an exemption eliminates the potential friction added to the buying journey by two-factor authentication, but an exemption also sidelines the extra protection that step-ups provide an online seller.

A constantly learning automated fraud solution with a financial guarantee provides the protection needed to ensure good orders are shipped and fraudulent orders are declined.

Merchants and brands will want to be able to confidently pursue an aggressive exemption strategy without worrying about new vulnerabilities that fraud rings will look to exploit. Consider the irony of working so hard to maintain a low fraud rate in order to take advantage of exemptions, only to have those exemptions ultimately lead to a higher fraud rate.

As with many things in commerce, it’s best to take a holistic view when you’re considering how SCA and its exemptions fit into your entire risk management plan.

 

Business

Hidden channel costs: how to find and tackle them

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By Mark Wass, Strategic Sales Director, UK and North EMEA at CloudBlue 

 

Growth for businesses will always be a key objective. However, in this digital age, if it occurs too rapidly, it can often unearth cracks that harbor hidden costs and pre-existing efficiencies.

 When it comes to channel distribution, for the majority of partners, hidden costs are widespread. A lot of partners work with multiple channels and systems, and this can become complicated. It can also affect their ability to track information.  On average, 30%-40% of IT spending  in large enterprises is accountable to inefficiencies caused by shadow IT.

 There is no single root cause of hidden costs. An array of issues such as wasted resources, labour, time constraints, poor implementation oversights and maintenance issues are all contributors, and the cuts only get deeper as partners scale. Here are the ways service providers can eliminate hidden costs.

 

Where to look for hidden costs 

 In general, unaccounted, or unattributed costs originate from four areas, with the first being shadow IT.

 Shadow IT is the use of systems, devices, software, applications, or services without explicit IT department approval. The phenomenon has grown in recent years due to the adoption of cloud-based applications and services, with the average company using 30% more unique SaaS (Software-as-a-Service) apps than they were in 2018. Thanks to the ease of adding new software, departments are going it alone and buying platforms that can be niche, or duplicate processes, and even in some cases using multiple versions of chat apps to communicate internally. 

Mark Wass

The next hidden cost stems from implementation and integration. Channel partners need to work within different systems, and almost always underestimate the budget needed to work with new software solutions. A consistent blind spot across the industry is the inconsistency of implementation and integration at budget.   

In terms of maintenance, it is especially difficult when partners create homegrown software to handle provisioning, relationship management, or data management. While such proprietary software might perform well for initial purposes, maintenance and upgrades can be a nightmare. Likewise, internal knowledge transfer in this situation is crucial.  

And finally, the scalability of expanding from one market to the next is not linear and neither is the cost. Partners that have already launched in one part of the world often think that it will cost around the same to expand into another region, like between the US and Europe. However, this thinking does not consider the additional effort to contend with the new currency, language, audience, and regulation, as well as local operations within the region.  

 

Tackling hidden costs  

The good news is that there are multiple remedies to hidden costs. Integrations, for example, successfully bring together disparate systems and improve efficiency. Partners that have manual processes and pull information from one system before typing it into another are wasting time and resources by dedicating an entire person to this process. Clearly, this should be automated to cut down on human errors and save in the long run. 

Along with integrations, partners should purchase software with scalability and unification at heart. There is no magic platform that does everything entirely so companies should opt for the best of breed, even if the initial investment is a bit more. This will help to offset the concerns of scalability, maintenance, lack of expertise, and potential unforeseen overheads. Moreover, best-in-class platforms help to paint a consistent long-term picture of the health of channel operations. 

For channel health, it is also integral to integrate outside experts to perform an overall business diagnostic. These can be consultants, solution architects, and those alike that know channel software and best industry practices to help architect a scalable and efficient platform. Working in conjunction with the team, these objective outsiders work to find the gaps and tighten any software screws. 

 

Helping the channel by combating inefficiencies

Hidden costs can become widespread, and this can lead to channel partners paying up to twice the price for half the output.

 More than the financial downside, though, hidden costs should be thought of as hidden inefficiencies. Especially in today’s accelerated digital transformation, inefficiencies can make or break fast-growing channel operations. Therefore, weeding out hidden costs with improved efficiencies can work wonders by saving budget and running a tighter ship. 

 Integrated software and platforms can then be used for change. By unifying and standardising existing systems, managers receive a single view of contracts, reporting, sales, marketing, and day-to-day operations. This  provides them with the right tools to achieve sustainable growth. Rather than overwhelming teams with several types of platforms and software, this single operational view allows for the much-needed oversight that is necessary to set a business up for success. 

 It is essential for channel partners to seize the moment and eliminate the perils of hidden costs, especially given the rapid growth of businesses in the digital and cloud spaces.

 

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Automation nation: Liberating workers from desks, data entry and the doldrums

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By

Gert-Jan Wijman, VP of EMEA at Celigo.

 

Just when businesses thought the tough times were over, even more challenges ensued. While still recovering from the financial effects of the pandemic, companies were hit with an economic downturn that’s now resulted in a recession in the UK.

In this economic context, teams are being forced to do more with less. This means onboarding with reduced manpower, delivering ground-breaking marketing campaigns with less budget and mitigating outlay in the middle of a cost-of-living crisis. Being nimble and streamlining operations has never been more imperative.

That’s where automation comes in. While automating before the recession would’ve been the ideal scenario, it’s never too late to get ahead of competitors. It’s only a matter of when – not if – automation becomes standardised, as businesses insistent on using legacy tech and manual processes will be outpaced by those savvy enough to embrace smarter alternatives. In fact, it’s predicted that in just two short years, 70% of large global enterprises will have over 70 hyperautomation initiatives.

For finance teams and the tech-strapped CFO in particular, automation can be a saving grace. Tech stacks are more complex than ever due to the proliferation of specialised finance SaaS applications for quote to cash, Accounts Receivable & Accounts Payable (AR / AP), cash management, tax, accounting close and corporate performance management. Having the tools to automate these processes enables modern CFOs to adapt to changing tech needs, scale quickly and future-proof their organisations.

Automating today to prepare for tomorrow

Too often, automation is viewed as a job killer. We’ve all heard the apocalyptic narratives about ‘robots taking over,’ but that’s an outdated notion. Instead, automation is a job enhancer. Not only does it minimise errors, speed up processes and help businesses cut down on admin, it liberates employees to dedicate their time to be more creative or perform complex tasks.

Take a company like WeTransfer, for example. Bogged down by manual processes, the team struggled with closing financial books and completing billing cycles on time. After integrating its tech stack, quote-to-cash automation worked immediately and the time to close reduced dramatically, significantly reducing the hours dedicated to manual data entry.

Its revenue accountant was then able to work on core tasks in the finance department and alongside sales operations on the process improvements, no longer worrying about completeness issues associated with the sales and financial systems integrations.

Not only that, it liberated employees physically and unlocked access to more valuable talents. Beneath all the technical and monetary benefits, these are the core principles behind why automation will soon become impossible for firms to ignore.

Physical Liberation

Hybrid work has been one of the biggest positive developments driven by the pandemic. However, while employees surely won’t miss long commute times or the constraints of office life, a disparate workforce comes with challenges. It’s vital that organisations can trust their data and business processes in order for effective collaboration to be possible.

Automation can enable this, as it allows cloud-based systems to share data across a business through integration, ensuring all workers have access to the resources they need to work together effectively wherever they are.

This makes businesses nimble, able to operate across multiple locations when needed and well equipped to decouple entirely from headquarters if needed. Workers can then be as effective from home as from the office, ensuring they can maintain a better work-life balance without compromising productivity.

It’s no wonder then that 78% of organisations worldwide think remote working will increase the proportion of their workforce using automation, while over two-thirds (71%) that have already implemented automation are beginning to feel the benefits.

Liberating Talent

Automation also ensures talent is no longer wasted on manual tasks. 3 in 5 (60%) occupations could technically automate more than 30% of their tasks, highlighting the bevy of possibilities and offering a glimpse at the future of work.

When workers spend their time crunching numbers and organising spreadsheets, it’s easy for them to feel like a cog in a machine. With automation, however, they have more room to share their ideas and feel connected to the operations of the business.

With menial tasks taken out of their hands, employees are freed up to perform more complicated and creative jobs, the sorts of work that could never be automated. And by filling workers’ days with more of these engaging responsibilities, they’re able to feel like they have a real stake in the company’s success.

There is also research to suggest that workers can get as many as 100 hours a year back as a result of their manual tasks being automated, meaning everyone could get an extra two weeks of paid leave without productivity taking a hit.

Automating into the future

Already, over 80% of organisations self-report increased or continued investment into hyperautomation initiatives. So the appetite is there, now comes making it a reality.

Automation at scale is the dream, but the transition won’t happen overnight. In a perfect world, organisations will be able to assign all manual and tedious tasks to the machines, with employees only needing to provide oversight when necessary, but there’s a journey to get there.

That’s why it’s critical that CFOs collaborate closely with their CIOs. Only then can we realise a scenario where manual processes are eliminated entirely, and data across systems can be accessed and updated in real-time. But this will require leaders to understand each other’s needs and challenges so they can align their visions.

As organisations become more disparate, this partnership will only grow in importance. CIOs can empower the CFO and their teams to implement the automation initiatives best for them, with IT maintaining oversight to ensure compliance.

With the right structure and mindset, CFOs and the entire C-Suite can be encouraged to pursue digital transformation in a way that’s most effective for them and the entire organization.

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