The digital era has revolutionised the way we conduct financial transactions. As we increasingly rely on online payments, it has become more important than ever to ensure secure transactions. One of the ways this is done is through 3D Secure, a protocol that adds an additional layer of security to online card payments. In this article, we will discuss what 3D Secure is, how it is being used currently, and its advantages and disadvantages.

What is 3D Secure?

3D Secure is an authentication protocol that adds an extra layer of security to online card transactions. It was developed by Visa and is now widely used by other card networks, such as Mastercard and American Express. 3D Secure requires the cardholder to provide an additional piece of information, such as a password or a one-time code, in addition to the usual card details, to complete a transaction. This extra step makes it almost impossible for fraudsters to use stolen card details for online purchases.

How is 3D Secure being used currently?

3D Secure is widely used in online transactions, particularly in Europe where it is mandated by the Payment Services Directive 2 (PSD2) for online card transactions. In Europe, 3D Secure is known as "Verified by Visa" or "Mastercard SecureCode." Outside of Europe, the protocol is optional, but many  businesses choose to implement it as an additional security measure. In many cases, merchants are unaware of the protocol and how it works to keep them safe.

The latest version of 3D Secure, 3D Secure 2.0, was released in 2019 and has been designed to address some of the challenges of the original protocol, such as checkout friction and mobile device support. One of the key improvements is the use of a risk-based approach to determine whether additional authentication is required. This means that, based on factors such as the transaction amount, the merchant's risk profile, and the cardholder's behaviour, the protocol can determine whether additional authentication is necessary. This can help to reduce the friction associated with authentication and make the checkout process more seamless for consumers.

Additionally, it supports biometric authentication methods, such as fingerprint and facial recognition. These methods can provide a more secure and user-friendly authentication experience, as they require the user's physical presence and cannot be easily replicated or stolen. This can help to increase consumer confidence in the security of their online payments, and encourage more consumers to make purchases online.

Advantages of 3D Secure

Lower risk of fraud and chargebacks for merchants and issuers:

• One of the key advantages of 3D Secure is that it can help to reduce the risk of fraud and chargebacks for merchants and issuers. By requiring an additional authentication step during the checkout process, 3D Secure can help to verify that the cardholder is who they claim to be, which can help to prevent fraudsters from using stolen or counterfeit card details to make purchases. Additionally, if a chargeback is filed on a 3D Secure transaction, the issuer will most likely side with the merchant, as the additional authentication step can help to demonstrate that the transaction was legitimate. This can help to reduce the financial burden of chargebacks on merchants, and help issuers to more accurately identify fraudulent transactions.

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It is important to note that while 3D Secure can provide an additional layer of protection for merchants against chargebacks, it does not guarantee that the issuer will always side with the merchant in the event of a dispute. The liability shift provided by 3D Secure means that if a transaction is authenticated using 3D Secure and later disputed, the issuer will bear the liability for the chargeback, rather than the merchant. However, this is not a guarantee that the issuer will automatically side with the merchant in all cases.

• There are certain circumstances where an issuer may still dispute a chargeback even if the transaction was authenticated using 3D Secure. For example, if the cardholder claims that they did not authorise the transaction, or if the transaction was not processed correctly, the issuer may still choose to initiate a chargeback. In addition, while the liability shift provided by 3D Secure can help to reduce the risk of chargebacks, it does not eliminate it entirely. Merchants should still take steps to minimise the risk of chargebacks, such as ensuring that they have clear refund policies, providing accurate product descriptions, and responding promptly to customer inquiries and disputes.

Increase consumer confidence in online payments:

• Another advantage of 3D Secure is that it can help to increase consumer confidence in online payments. By providing an additional layer of security to the checkout process, 3D Secure can help to reassure consumers that their payment details are being protected. This can be particularly important for merchants that sell high-value items or operate in high-risk industries, where consumers may be more hesitant to make purchases online.

Lower risk of fraud for consumers:

• Finally, 3D Secure can help to reduce the risk of fraud for consumers. By requiring an additional authentication step, 3D Secure helps to prevent fraudsters from using stolen card details to make purchases in the cardholder's name. This can help to protect consumers from fraudulent transactions and the resulting financial losses. Additionally, by reducing the risk of fraud, 3D Secure can help to increase consumer confidence in online payments, which can encourage more consumers to make purchases online.

Disadvantages of 3D Secure

Decrease in conversion rates:

• One of the potential downsides of 3D Secure is that it can create friction in the checkout process, which may lead to a decrease in conversion rates. Cardholders may find the extra step of authentication cumbersome or find the entire process confusing, thus leading to more abandoned transactions. This can be particularly problematic for merchants that rely heavily on online sales, as every abandoned transaction represents a missed opportunity for revenue. Additionally, the extra step of authentication may cause some customers to feel that the checkout process is too complicated, leading them to abandon the purchase altogether. Therefore, merchants should carefully weigh the potential benefits of 3D Secure against the potential impact on conversion rates.

High cost:

• Another disadvantage of 3D Secure is the cost of implementation. While the exact costs can vary depending on the payment gateway, acquirer, and issuer involved, merchants can expect to pay fees for each transaction processed through 3D Secure. Additionally, there may be costs associated with integrating 3D Secure into the merchant's payment gateway. These costs can add up quickly, particularly for smaller merchants with limited resources. Merchants should carefully consider whether the benefits of 3D Secure justify the additional costs of implementation.

Potential for technical issues:

• Another potential disadvantage of 3D Secure is the potential for technical issues. Technical problems can occur when the authentication process fails, leading to failed transactions and unhappy customers. For example, the authentication message sent by the issuer may be delayed or lost, resulting in a timeout error or a failed transaction. Additionally, some cardholders may be unable to complete the authentication process due to technical issues with their devices or internet connection. Merchants should be prepared to deal with these issues promptly and efficiently, as they can have a negative impact on customer satisfaction and repeat business.

In conclusion, 3D Secure provides several advantages to merchants, issuers, and consumers, including a reduction in the risk of fraud and chargebacks, increased consumer confidence in online payments, and improved protection for sensitive payment information. However, it's important to keep in mind that it also has some potential drawbacks, such as decreased conversion rates and increased costs associated with its use. To maximise the benefits of 3D Secure, it is best used in conjunction with a sophisticated fraud solution that allows merchants and issuers to trigger the protocol only on transactions with a high likelihood of fraud. This can help to retain a high conversion rate while still reducing the risk of fraud and chargebacks, resulting in lower costs from reduced usage. Overall, 3D Secure remains a valuable tool for protecting online payments and helping to ensure a secure and trusted online shopping experience.

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