12th June 2019

3D Secure Payments: What Are They & What Does The Future Hold?

Keeping up with updates and developments in the payments industry is like trying to remember which was the latest installation of the Fast & Furious franchise – you’ll definitely lose track.

Unlike the declining quality of the aforementioned movies, the payment sector updates carry value and quality of the highest order. The industry might be moving at a faster pace than most partakers are used to but it’s all heading to a positive direction.

Online payments are becoming faster, more convenient and accessible for both businesses and customers. All sounds good up until now, right? Right. If you feel like there’s a BUT coming your way, you should trust your intuition more often.

The payments industry is heading towards a positive direction but (there it is), security will always be a challenge. As long as money exists, so will the people that try to steal it. Fraud and financial misconduct will always be part of the payments equation and one, if not the biggest bottleneck.

What is the current security protocol? How does it work and what does the future hold for payment security?

3D Secure

In a nutshell, the 3-Domain Structure is a security protocol that helps to prevent fraud in online credit and debit card transactions. It requires cardholders to use a unique password code when they make an online payment. Originally launched by Visa in 2001, this extra level of security gives both customers and merchants an elevated level of security against card payment fraud.

Once a customer goes through the 3D authentication step, they are no longer liable for the purchase and any potential implications. The liability is instead transferred onto the card payment provider. This extra level of security does not only safeguard the customers’ card details but it creates a strong bond of trust and loyalty between customer and business.

Even though it was introduced by Visa, 3D secure authentication is not considered an industry standard and it’s supported by all the main debit and credit card issuers, such as Mastercard and American Express.

The protocol has always been seen as a “necessary evil” for the industry as whilst it served a noble cause, its implementation was a problem for good customer experience. This specific step in the purchasing journey of a customer has always been the one with the highest abandonment rates and the principal reason for overall declining conversion rates.

To add to the growing pains of 3D Secure came the evolution of mobile commerce. The protocol wasn’t designed to fit the aesthetics and interface of mobiles and was thus viewed as clunky and not fitting to the fast-paced, instantaneous nature of mobile commerce.

A 2018 Paysafe research paper recorded the following interesting findings:

  • 55% of businesses surveyed said that online card fraud was an increasing problem
  • 74% agreed that fraudsters are targeting online channels more than they were a year ago
  • 33% of British consumers and 34% of US consumers said that they had been victims of fraud
  • 29% of Canadians said they had been victims of fraud

3D Secure 2.0

3D Secure served its purpose for a long time but like with every security protocol/procedure, an update was both vital and necessary.

Enter 3D Secure 2.0.

The newest iteration of the security standard leverages a machine learning to harvest a wider range of data (10x more than previous version) to create a shareable pool of information. This pool can be then used by card issuers to make better risk decisions. Banks, merchants and bank issuers will be at a more advantageous position to do their job and increase authorization rates.

Information will now “travel” with more ease, risk assessment will happen at a higher clip and with higher levels of success making the road-map of merchant/acquirer, issuer, and interoperability much safer.

Furthermore, the protocol now includes mobile commerce such as wearables, in-app purchases and digital wallets.

Have a look at this 3D Secure 2.0 research guide by TAS Group. The advantages of 3D Secure 2.0 for merchants/acquires seem to be significant already.

  • 85% reduction in checkout time
  • 70% reduction in cart abandonments
  • Reduction in the number of false positives
  • Reduction in transaction fees
  • Approval rates10 to 11% higher in markets where 3DS 2.0 is used than for non-3DS transactions

The evolution of the protocol seems to be tackling all the outstanding issues of its predecessor, adapting to the needs of the fast-evolving digital age we are currently galloping through.