The payment processing industry continues to fight what seems like a never-ending battle with fraud. 

According to a study by Jupiter Research, the total cost of e-commerce fraud to merchants was just over $41 billion in 2022, and it was projected to exceed $48 billion globally in 2023.

Due to the ever-present threat of fraud, Fincra has continuously used technological advancements to equip its gateway against fraud. 

One of such innovations is 3D Secure. This article will give you a better understanding of 3D Secure.

3D Secure is a verification method that provides an additional layer of authentication for credit and debit card transactions to protect against fraud. 

The way 3D Secure works is that it generates an extra password or code to further verify that the card owner is making the transaction. 

Here’s a bit of historical context: In response to rampant fraud in online card payments, Visa, the American card company, developed 3D Secure authentication in 1999, a revolutionary invention that made online shopping safer. 

Since then, other card networks have adopted the initiative, which they all now use to secure online card transactions. 

3D Secure has also evolved and improved into an iteration called 3D Secure 2.0, created by the EMVCo and its six-member organization, which includes American Express, Visa, JCB, Mastercard, UnionPay and Discover.

It was developed to improve the overall performance of the 3DS program. They identified the shortcomings of the original 3DS and addressed them with this new and improved version.

3D Secure has been helpful for businesses. Given the high rate of chargeback fraud, imagine how much businesses would have suffered without it. 

With 3D Secure, businesses are saved from the cost of chargeback claims. 3D Secure allows businesses to transfer the liability of chargeback claims to the card issuer. 

The one-time password—which is needed to complete the transaction—sent to the cardholder proves that the cardholder completed the transaction, allowing the merchant to win most chargeback disputes. 

The name 3D comes from the three-domain model used to provide an added layer of security between the financial authorisation process and the online authentication process. The three domains used to give this security are:

• Issuer Domain: The bank that issued the credit or debit card used for the transaction.
• Acquirer Domain: The bank and the merchant receiving the transaction payment.
• Interoperability Domain: The infrastructure provided for the card that’s used to support the 3D Secure protocol.

If your payment gateway (just like Fincra) is enabled with 3D Secure, then the process that occurs is a bit like this:

• The customer enters their payment information either from a phone or computer.
• 3DS technology gauges if further safekeeping is needed to ensure they are the rightful card owner. If so, they’ll be directed to a 3DS page and asked for a password or PIN.
• Simultaneously, their bank generates a one-off PIN and sends it to their phone via SMS. That is the PIN they must enter before they can complete the transaction.
• They will be redirected back to your site when that is done.

Pros

• Protection against chargeback 

Whether the chargeback claims are accurate or fraudulent, your business does not bear the cost of any chargeback claim.

3D Secure helps mitigate the resources associated with dispute management, chargeback penalties, and fees because businesses are not liable in cases of chargeback claims. 

In the past, when a chargeback occurred, the merchant was typically liable for this transaction; 3D Secure changes that. 

• Customer confidence

As a business, customer confidence is critical for your success. Many customers will feel more confident knowing there is an extra level of security to protect their data.

Cons

• High Cost

When discussing the disadvantages of 3D Secure, we have to talk about the cost of implementation. Although the exact prices can vary depending on the payment gateway, acquirer, and issuer involved, fees are attached to each transaction processed through 3D Secure. 

Apart from that, there are costs associated with integrating 3D Secure into the merchant’s payment gateway. All these costs add up quickly, so merchants need to decide whether the benefits of 3D Secure outweigh the additional implementation costs.

• Decrease in conversion rates

The conversion rate refers to the number of users who initiated the checkout process versus those who paid and completed their purchase.

Customers want to complete the payment process as quickly as possible; the extra authentication step increases the time spent on the transaction, and some customers find it more complicated. 

All this leads to an increase in the frequency of abandoned transactions and a decrease in conversion rates.

• Potential technical issues

Like any technological improvement, incorporating or implementing it may involve technical issues. For example, the card issuer sometimes does not send the customer the one-time password on time; in some cases, they do not even send it. 

This hiccup will lead to a failed transaction because it can only be completed with the password. 

This is just one of the many technical issues that could emerge.

There are a couple of disadvantages of 3D Secure, but it has become evident over time that the pros heavily outweigh the cons, especially for merchants.

The developers of 3D Secure knew what problems they were solving. They listened to merchants and cardholders and created a product that simply improved things. 

As a merchant trying to compete in the present-day business landscape, you need a payment solution company that provides you with a working 3D Secure payment gateway- you need a company like Fincra.

Fincra’s payment gateway powers card transactions with our Payment Link and Checkout features. 

At Fincra, we prioritise our merchants and ensure we give them all the payment collection tools they need to be successful as a business. If you would love to join the fast-growing community of Fincra merchants, Create a free account today.