How to use delegated authentication to reduce friction and increase checkout conversion

The ecommerce market is growing rapidly – and so is payment fraud.

Organizations and authorities across the world have had to deal with the issue, on some level or another. But in many cases, this has come with introducing friction into the shopping journey. As a result, cart abandonment and customer churn continue to be a concern for merchants.

Could delegated authentication be the solution in the dilemma between conversion and compliance (or simply safety)?

The links between safety, friction and conversion

One of the main motivations behind legislation such as PSD2 is to make payments safer and more secure. Strong customer authentication (SCA) is a key part of this, but it’s hard to ignore the impact of added security measures on the customer checkout experience.

If you’re concerned that the friction caused by these extra steps leads to abandoned carts and a loss in online sales, you’re not alone. Ravelin's 2024 Fraud Survey showed that "concerns about friction" was the second-biggest deterrent that stops companies from being more vigilant against fraud, at 38.2%.

At the same time, in a different question, 27.9% report that customer conversion has been negatively affected by fraudulent activity at their company. It's well documented that the more friction is introduced into any user journey, the more likely that user is to abandon that journey – in our case, their shopping basket.

Enter the delegated authentication option.

What is delegated authentication and why should you care?

In the case of payments, delegated authentication is any path to authentication that is delegated from the merchant to someone else, typically a card scheme. This means the experience will be low- or no-friction for the shopper, effectively boosting the likelihood that they will continue with their purchase.

Delegated authentication is exciting because it offers an alternative payment authentication without compromising on customer experience or security. Issuers can allow a third party to do the authentication. So, that could be an acquirer, digital wallet provider or you as the merchant.

Payment networks, including Visa, Mastercard and GIE Cartes Bancaires, are offering delegated authentication broker programs. Merchants that qualify can perform authentication through the networks' own interface. Each scheme has its own conditions and criteria for registration. But the benefit across the board is lower cart abandonment, greater control and an increase in transaction approval rates.

Reduce cart abandonment with fewer steps

We know that having an extra layer of security with electronic payments is valuable when it comes to tackling fraud. But, the added steps create friction.

In a typical buying journey, a customer experiences two authentications. First, with the merchant when they log into their account, and then again with the issuer when it’s time to pay. The issue here is that the more hoops that a customer has to jump through to make a purchase, the less likely they are to complete that purchase.

In some instances, customers can’t always tell if the issuer popup window is authentic, which can cause suspicion and also result in transaction abandonment. So, keeping this process simple is important from a revenue perspective.

With delegated authentication, customers are no longer redirected to the issuer interface. This means that you can authenticate customers yourself, keeping them within your domain to offer an easy “one-click” purchase.

Take control to enhance your user experience

As mentioned, cardholders are usually redirected to the issuer interface at checkout. This means that you have no control over the user experience or authentication method used when a customer comes to you to buy goods or a service.

If you are a larger organization that partners with multiple PSPs, your customers might have a completely different buying experience. Some customers may be subject to far more friction, or even have fewer authentication options available, creating more barriers to checkout completion. And this lack of consistency definitely won't help ease customer suspicions.

Delegated authentication places the authentication journey in your hands. Basically, you can fulfill the SCA requirements, deciding when and how to authenticate your customers.

As an online merchant, you already know your customer, what they want and the best way to authenticate their payments without disrupting their experience. So it makes sense that you are the one to provide this.

Support frictionless payments

To join Mastercard and Visa’s card scheme programs, you need to use Fast Identity Online (FIDO) authentication. For merchants that have registered their customers through the service, the customer account login can be used as authentication for payment transactions. FIDO enables passwordless authentication, so all the customer needs is their personal device.

Essentially, when a customer goes to make a purchase, they've already authenticated themselves in a way that is compliant with SCA. From a customer experience standpoint, this is like frictionless authentication.

Get higher transaction approvals

When it comes to conversion, getting customers to complete their transactions is only half of the challenge. The other is making sure the issuer approves the payment. We have seen that when a customer's payment is declined on one merchant platform, they are more likely to shop elsewhere in the future. This means the merchant loses the sale, and loses out on even more potential value later on. So how can you boost your chances in getting transactions approved by the issuer?

As a merchant, you know more about your customers than anyone. Your payment provider only has access to transaction data. You can share insight on the customer account age, their behavior, number of orders, number of payment methods, any password changes and so much more. This fraud-level data is exactly what issuers can use to trust in the authentication, to boost your approval rate.

Keep it simple with delegated authentication

Seamlessness and ease are the driving principles behind ecommerce. Delegated authentication means that you don't have to choose between conversion and minimizing the risk of payment fraud. Instead, provide your customers with an intuitive and low-friction user experience while remaining compliant with SCA.

In short, a simpler payment process means higher conversion rates.

Watch the PSD2 authentication and exemptions webinar to learn more about delegated authentication, 3D Secure and PSD2.