3D Secure (3DS) is an additional layer of cardholder security and authentication for online card transactions, and more and more large retailers are wanting to add it into their payments process. It is easy to understand why: if a shopper is making a payment online using their card and the bank determines that the transaction might be suspicious, the bank card issuer redirects them to a 3DS page for further verification.
The benefits for retailers are that it reduces costs and provides more data to help them boost security and authentication rates. This not only expedites processing for legitimate customers but also more accurately flags fraudulent charges. It also reduces chargeback rates and fraud. The appeal of 3DS for consumers is that it protects them by making it harder for bad actors to use their cards fraudulently.
However, 3DS places more risk on — and less revenue for — card issuers, driving their hesitation in wanting to use it in the U.S. market.
So what will move 3DS forward and increase adoption across the board? To drive the use of 3DS in the U.S., it may take pressure from retailers and consumers on the card issuers and payment service providers to make this happen.
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Card Issuers Receive Benefits from 3DS
Despite the increased risk and reduced revenue that issuers may face, they should have strong incentives to adopt 3DS, such as gaining access to a more detailed data set about the cardholder and transaction. This enables them to make more informed risk decisions, improving their ability to assess and prevent fraudulent activity. As a result, issuers are less likely to face chargeback disputes from cardholders, which in turn reduces the time and costs involved in resolving these issues.
What we can Learn from Europe
Europe – which requires 3DS for all online transactions – provides a good model for the U.S. to follow so that 3DS works for all parties, and retailers and their shoppers can reap the benefits.
Following are some recommendations from what has worked successfully oversees:
First, education is key. The consumer must not be surprised to receive the authentication challenge involved with 3DS and should understand that this procedure has been introduced by the cardholder’s issuing bank to protect their credit card account.
Next, the authentication request must be embedded properly into the checkout process. The first version of 3DS in Europe appeared very crude, so many consumers were suspicious about being lured into a fraud scheme through pop-up windows. With the current 3DS2 workflow, the process looks more natural and understandable, making it widely accepted. This seamless, trusted process is critical in a world that feels like everyone is trying to get your information and commit fraud.
Additionally, card-issuing banks should use biometric authentication whenever possible. Consumers got accustomed to and comfortable with fingerprint and face-scan technology. Using the existing smartphone procedures for two-factor-authentication gains consumer trust. Ideally, the process to authenticate for a card transaction is the same one that consumers use to log into their online banking or card issuer app.
Finally, payment service providers working with retailers in Europe are already well-versed in 3DS and are experienced in seamlessly integrating it into their payment processes. Retailers should consider seeking providers that can leverage this background to ensure a smooth experience for both the retailers and the consumers.
From a benefits perspective, 3DS is a highly automated process. It reduces manual work drastically, e.g., there is no more need for credit card representatives to call for verbal confirmation. This reduces cost and accelerates checkout. Consumers get their deliveries earlier, and retailers gain a smoother shipment process.
While 3DS is not strictly required in the U.S. for payments because there is no federal regulation mandating its use, it makes solid sense for retailers’ transactions. However, it may take pressure from retailers on the card issuers to make this a reality. To benefit everyone involved in digital transactions, it is crucial for card issuers to take the initiative and integrate 3DS into their online card payment offerings.
Jed Danbury is VP at international payment service provider Computop.
