• 4 MIN READ
A Surge in Adoption of the Latest 3D Secure Technology for Online Payments
July 28, 2023
Many people use online money transfers and payment options all the time. As we gradually move away from physical cash payments, it’s no wonder we worry about whether the money has reached the recipient and whether our finances are safe with our banking or FinTech app. Everyone would agree that fraud prevention is of paramount importance.
To make payments safe, financial organisations are required to use data encryption and security protocols. One of them is 3D Secure. The current version is 3DS2.2, and it has been since the previous version, 3DS1, became obsolete back in 2022. In this article, we’ll discuss the adoption of the latest 3D Secure technology.
What Is 3D Secure?
3D Secure is an authentication protocol used as an additional layer of security for credit and debit card transactions. It enhances security for both customers and businesses. 3D Secure enables safe checkout without compromising on speed and efficiency.
3D Secure was developed for the Visa payment system to improve the security of online payments. Services based on this protocol have been adopted by Mastercard, JCB International, American Express, and other financial service providers.
A recent report from Ravelin describes significant growth in the use of the latest version of 3D Secure. The number of transactions processed globally using 3DS2.2 has risen from 1% in 2022 to 17% in 2023. Despite frequent version updates, 3DS2 looks to be the most reliable for the financial industry. Let’s explore how the protocol has evolved.
Limitations of the 3D Secure v1 Protocol in Payment Systems
The first version of 3D Secure was used until October 2022. The problem with the original protocol was that consumers were asked to go through a complicated authentication process. Often, shoppers would simply give up and abandon their shopping carts, resulting in lost sales for online marketplaces. In addition, the version no longer met safety standards and was fully deprecated. Let’s look at some other reasons why version 1 has fallen into oblivion.
A central aspect, as emphasised by the developers, was the verification of customer identity. While it was necessary for the transaction approval process and helped determine potential risks, it had significant drawbacks:
- The ability to analyse was restricted. The system only relied on 15 types of transaction data, which limited the effectiveness of the risk assessment.
- Risk notifications led to an increased number of purchase refusals, which negatively impacted the customer experience.
- The protocol required customers to enter a PIN, and if it was forgotten, the transaction was declined.
- Customers were redirected from the merchant checkout page to the card network site to confirm the transaction, resulting in delays in order approval.
What Does the 3D Secure v2 Protocol Include?
To keep businesses and customers safe, leading credit card networks have introduced a new, more robust version of the 3D Secure protocol that provides an additional layer of security at checkout. This protocol allows businesses to securely transfer detailed transaction information to the issuing bank.
Previously, two-factor and multi-factor authentications (2FA, MFA) were considered highly effective means of securing transactions. However, hackers have found ways to bypass such a defence system, making it less reliable.
In contrast, the latest version of 3D Secure (version 2) has shown promising results in the fight against credit card fraud, with an estimated reduction of at least 40 per cent. This level of performance was not achieved immediately, as the initial version of 3D Secure had its flaws, but the performance is still very good.
3DS2 provides the following benefits:
- Flexible support for different devices and channels. 3DS2 provides a smoother and more consistent user experience and supports mobile phone browsers , in-app, and digital wallet payments.
- Improved user experience. 3DS2 gives merchants the ability to integrate the authentication process into the shopping experience, providing cardholders with secure, fast, and easy authentication. 3D Secure v2 uses dynamic methods like biometrics and token-based authentication.
- 3D Secure 2 allows companies to embed payments directly into their web and mobile flows. Companies will no longer require their customers to switch to a browser-based stream to complete a transaction.
- Improved data sharing to combat fraud and reduce barriers. The frictionless flow allows issuers to approve a transaction without requiring manual input from the cardholder. This is achieved using risk-based authentication (RBA).
Growing Global Adoption of 3D Secure v2
This new version of authentication has positive adoption rates, which is particularly notable when compared to historical data from version 1. For example, in the UK and Ireland, merchant authentication success rates were 81% with 3DS 2.1 and 82% with 3DS 2.2. These same authentication rates are also seen around the world.
However, a significant number of merchants remain uncertain about the promised era of frictionless authentication, as mentioned in the Ravelin report. They express serious concerns about the impact of the Strong Customer Authentication (SCA) protocol on conversion rates. In the UK and Australia, 89 per cent of respondents expressed concerns about the impact of 3DS; in Germany and Spain, this figure rose to 97 per cent, and in the US — 93 per cent.
Despite this, the evidence that 3DS 2.1 and 2.2 are successful is the same worldwide. Moreover, most transactions (over 60% in Europe) are frictionless, i.e., authentication is performed without direct customer involvement.
The positive results are encouraging for merchants fighting fraud, although 3D Secure is not a one-size-fits-all tool or strategy. In addition to 3DS, businesses should use a robust fraud detection system to ensure a seamless e-commerce experience.
Experts remain concerned about the impact of 3DS on conversion rates due to the historically low 3DS1 rates. But now, to confirm digital identity at checkout, 3DS2 and the issuing bank work together. This makes checkout faster and simpler. In Europe, the use of 3D Secure 2 is mandatory.
The Benefits of 3D Secure v.2 for Businesses
The advantages of the protocol are obvious to users, internet business owners, FinTech organisations, and payment systems. Multi-level payment verification increases the level of security and enhances fraud protection. 3D Secure both facilitates and simplifies the verification mechanism and increases the amount of information collected for analysis.
3D Secure v.2 not only provides safety and fast authentication but also offers a smoother and more consistent user experience. It supports multiple payment channels like credit and debit cards, digital wallets, in-app payments, and more.
At Payrow, we believe that the 3D Secure v.2 protocol is a great first step to implementing more advanced fraud protection. Make your payments secure with Payrow!
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