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3-D Secure - The Solution for Fraud Prevention

Fraud management, in recent years, has grown into a bigger concern among businesses that operate online. This is due to the increasing number of fraud attempts targeted at vulnerable, unprotected merchants that offer online payment as a quick and easy way to purchase.

For many online businesses, fraud management is conducted on a case-by-case basis, meaning that they can only be dealt with once the attempt is over and the damage is done. This puts merchants at a risky position where they are not well-prepared for more complex situations and cannot prevent fraudulent activities from happening.

There are many means that a merchant can adopt to prevent fraud from happening and manage their fraud rates more proactively. One of the most recommended remedies for the attacks is 3-D Secure - a payment security protocol/solution that is widely adopted by all major card schemes in the world.

In this article, we will be introducing the fundamentals of 3-D Secure, the way it works, its implementation rationale, downsides, and a conclusion to wrap up.

What is 3-D Secure?

3-D Secure (3DS) is an extra layer of protection added to the payment process in online shopping. The naming of “3-D Secure” depicts the three parties involved in the process, including the card issuer, retailer or merchant, and the infrastructure platform that serves as a bridge between the consumer and retailer.

It can be understood as an additional step added to the buyer's journey that enhances security for all participants. Initially developed by Visa as a means to combat simpler digital fraud targeted at merchants on the web, 3DS has grown to become a more comprehensive protective solution.

When 3DS is enabled, two-step authentication is often prompted when a customer purchases something from an online store. To simply put, all transactions within the 3DS environment will require authentication, in one way or another.

How Does it Work?

With the sole purpose of identifying legitimate cardholders, 3DS goes the extra mile in examining every transaction and deciding whether further authentication is required. If there is, the checkout site will be directed to a 3DS page that asks for a PIN or password from the buyer. The PIN will then be sent to the buyer via a phone number, in which they would have to enter into the page for identity verification.

3DS is now licensed to most major card issuers and solution providers to use for authentication. Having transactions mandated to go through 3DS does not necessarily mean that a password is prompted every time, it is only required when additional verification is needed to ensure security, or if it is adopted by the merchant as payment policy.

Why Should 3-D Secure be Implemented?

The security protocol is aimed at protecting participants of E-Commerce from fraudulent activities by safeguarding transactions. It is strongly recommended by EMVCo, major card schemes, and financial institutions that 3DS be adopted to enhance individual payment security as well as the E-Commerce landscape in general.

In implementing such solutions, merchants will be able to cut down on the costs incurred from fraud, and be more proactive in fraud management.

The Downsides to 3-D Secure Implementation

For some users, a 3DS pop-up or redirected site might be hard to recognize and distinguish from scam pages. Inexperienced users often misinterpret the page as phishing attacks and end up closing it before finishing the transaction. However, 3DS is understood to use one-off codes, meaning that the user's data are well protected.

Some merchants might fear that 3DS implementation would require their customers to perform an additional step, which could discourage them from purchasing. While removal of the authentication is not viable for safety, there are different ways in which can help merchants secure both sales and transactions.

Innovations in 3-D Secure

In aiming to balance out payment security and an optimal user experience for online shoppers, the EMVCo has been constantly researching and developing new functionalities and features for 3DS. This includes the birth of a frictionless flow, which uses advanced technology backed by Artificial Intelligence (AI) to cut down on unnecessary authentication procedures for low-risk transactions and payment profiles.

Not only does the frictionless flow facilitate better customer experience, it ensures, using the collected data and authenticating mechanism, that all transactions prompted through it are safe from fraud. This technological breakthrough paints a brighter picture for merchants who are insecure about the possibility of discouraging customers with time-consuming and hassling checkout processes.

Recently, in October 2022, the first-ever version of the 3-Domain Secure solution was sunsetted by EMVCo - its developer and licenser. This signifies a complete transition from the first-generation browser-based payment authentication technology into more developed cross-device protocols that is the future of identity verification.

Conclusion

To sum up, 3DS is a non-mandated, however, necessary mechanism deployed into both ends of a transaction - the merchant and the card issuer, to ensure safety in online payment. Identity verification is not a new thing in the industry, noting that online fraud has constantly been on the rise during the recent years.

Despite being a comprehensive solution to fraud management that mitigates consequences and reduces costs, many merchants remain reluctant to onboard a 3DS program. The various reasons that are discouraging merchants are the high costs, the need to understand complex industry standards and technologies, and so on.

If you are looking for an affordable, yet hassle-free solution that does not require much field knowledge, hop over to HiTRUST's official website, social media sites, or shoot us an email and we will catch you up with a tailored program that fits your merchant's unique needs.