What Is 3d Secure And Why Merchants Need It

By Author: SifiPay
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Security is one of the most important considerations for any online merchant, and it applies in both directions: you must protect your customers' financial information while also protecting your business from fraudulent transactions and chargebacks. We'd like to concentrate on the latter in today's blog post.

3D secure is a technical standard designed to make card-not-present transactions safer for both customers and merchants.
So, how does 3D secure work, what are the benefits, and why are some countries requiring merchants to have it? Let's take it one step at a time.

What is 3D secure?
3D secure, or 3DS, is a security protocol that allows a customer's identity to be verified when they make a purchase on a merchant's website. The protocol was created by Arcot Systems and implemented by Visa in 2001, followed by Mastercard, JCB International, and online payment gateway.

The 3DS solution was timely because e-commerce has grown in popularity since the internet's inception, but it has also proven to be more vulnerable to fraud because it is more difficult to verify a buyer's identity and intentions.

The ...
... protocol was updated to 3D Secure 2.0 in 2016, allowing it to provide a better user experience by eliminating flaws in the previous version. But before we compare them, let's go over the 3DS verification process's fundamental steps.

How does 3D secure authentication work?
We must first discuss a 2D secure payment processing solution before moving on to the 3D secure solution. The "D" in 2DS and 3DS stands for domain, and the digit indicates how many entities are involved in the processing. As a result, 2D secure verification combines intercommunication between the domains of the customer and merchant.
A 2DS transaction occurs when a customer adds a product or service to their cart and then completes the purchase by entering their financial information. All a customer has to do is enter their credit card number and expiration date, and they're done.

The third "D" in 3DS refers to an interoperability domain, which is an infrastructure that supports the security protocol.

With that said, the 3DS best online payment gateway works as follows: when a customer purchases something, they must still enter their credit card information. After that, they must either enter their permanent password for a 3D-secure service, a one-time password (OTP) that they will receive on the phone, or use the phone for biometrics authentication. Your purchase will be completed if the data is correct.
As a result, 3D secure makes it more difficult for fraudsters to purchase something using a customer's stolen card information because they will also need to know the permanent password or have access to the cardholder's phone to use OTP.

The difference between 3D secure and 3DS 2.0
Despite the fact that the implementation of the 3D secure protocol was critical for the protection of both customers and merchants, its early version had issues, prompting some merchants to refuse to use it on their sites. The issues were fortunately addressed and resolved by a 2.0 version update.

Let's look at how 3DS and 3DS2 differ in terms of protocol features:

Authentication method
Some customers were disappointed by the permanent passwords used for verification in the 3DS version, because buying something online requires memorising a code. Naturally, some people forget things easily, resulting in a poor shopping experience for them: they had to waste time calling their bank to change their passwords or abandon carts entirely. 3DS2 introduced OTPs or biometrics for authentication, which is much more convenient: you don't have to remember anything, so the transaction is faster and smoother, and your data is less likely to be stolen.

Integration with a mobile phone
The first version of the secure protocol was created before smartphones were widely used for e-commerce, so it could only be used for browser purchases. Both mobile apps and browsers are supported by the 3D secure 2.0 version.

The quantity of information gathered. The new protocol has 150 data points to evaluate the transaction, whereas the old protocol only had 15. With more information, the 3DS2 protocol is more likely to flag a suspicious transaction, which will then be subjected to additional cardholder verification. If the transaction appears to be in order, the cardholder will not be subjected to verification, saving time on the purchase. Additionally, the additional data allows for a significant reduction in false operation declines.

Taking all of this into account, it is clear that the update makes the verification process faster and more customer-friendly, resulting in less friction and cart abandonment issues. As a result, more merchants are experimenting with the security protocol. Furthermore, due to regulations in some countries, the use of 3D secure is required.

What is PSD2 and how it impacts merchants and banks?
The revised Payment Services Directive (PSD2), which went into effect on September 14, 2019, aimed at controlling payment processes through online payment gateway India.

The directive allows for two significant modifications. To begin with, it's the establishment of Open Banking, which means that Third-Party Providers of Financial Services (TPPs) can now use APIs to access clients' banking data so that they can use the services for online banking.

The second change, which is more relevant to us, is the Strong Customer Authentication requirement (SCA), which is an important update for the safety of both clients and merchants.

It means that a person must go through a two-factor authentication procedure in order to make a purchase. A customer must provide two of three types of information in order to do so. The following data types are associated with:

◉ something a client knows (a PIN, a password, or a security question);
◉ something a client possesses (a phone or an app to approve the authentication request);
v something a client is (biometric data like a fingerprint, or iris recognition);

As you can see from the authentication types, the 3DS2 protocol is the best fit for this verification, so merchants must include it on their website.

The SCA must be implemented by December 31, 2020, but due to the COVID-19 pandemic, there has been some delays.

The benefits of 3DS2 protocol for merchants
Now that we've covered how 3D Secure 2.0 works and why more businesses are adopting it, let's look at the protocol's main benefits:

Security
Although this seems self-evident, some merchants still disregard security precautions in order to reduce potential cart abandonment rates. With an update, 3DS2 check not only became more frictionless, but it also provides the most important type of protection for e-commerce businesses: protection against fraudulent transactions and, as a result, chargebacks.

Liability shift
Even if someone who purchased your product or service demands their money back, claiming they did not make a purchase, your company will not suffer losses. All thanks to liability shift: if a person uses the 3DS2 protocol to verify their identity, the chargeback for fraud will be redirected from the merchant to the issuing bank.

The trust of your customers
By implementing a 3DS2 protocol, you demonstrate to your customers that you are willing to go above and beyond to protect their data from fraudsters, and it increases the merchant's trustworthiness.

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