Introduction to 3-D Secure
In the rapidly evolving landscape of digital commerce, optimizing conversion rates is paramount for merchants seeking to boost profitability and enhance customer satisfaction. One tool that has proven essential in this effort is 3-D Secure (3DS). By adding an additional layer of authentication to credit and debit card transactions, 3DS significantly reduces fraudulent activities, fostering a more secure and trustworthy online shopping environment.
Current Setup: 3DS as a Merchant Insurance Policy
Despite its benefits, many merchants in the U.S. still view 3DS primarily as an insurance policy, often using 3DS selectively to perform risk assessments, only passing high-risk transactions through the process. This limited use of 3DS leads to several drawbacks:
- Higher Transaction Decline Rates: By not fully utilizing 3DS, merchants often face higher transaction decline rates, negatively impacting customer satisfaction, brand loyalty, and overall sales.
- Increased Fraud Rates: Inadequate use of 3DS can result in higher fraud rates, leading to chargebacks, customer complaints, and financial losses.
- Lack of Trust: When 3DS transactions are heavily defended, it can impact the trust between merchants and issuers, further complicating the payments process.
Why Aren’t U.S. Merchants Using 3DS as Intended?
Many U.S. merchants hesitate to fully embrace 3DS or use it only as a backup due to several concerns:
- Perception of 3DS: Some merchants still associate 3DS with customer friction, believing that it introduces unnecessary challenges during the checkout process.
- Cost Concerns: Merchants are typically charged for each 3DS request, leading some to limit their use of the service to control costs.
- Fraud Liability: Tier 1 merchants, who often have advanced risk management systems, focus on reducing fraud and maintaining high approval rates rather than shifting liability to issuers.
Fraud Risk Providers Who Accept Liability
Some fraud and risk score providers assume fraud liability for merchants, but this can prioritize low fraud rates over balancing security and customer experience. An alternative approach involves collaborating with merchants, processors, and issuers to achieve the best outcomes.
Sharing and Receiving Data
The 3DS protocol enables a two-way flow of data, benefiting both issuers and merchants utilizing the largest consortium of 3DS transaction data with over 150 trillion data points.
- Issuers receive detailed transaction data, allowing for better fraud detection and higher approval rates.
- Merchants get alerts on risky transactions and compromised devices and the payment metadata that is returned feeds internal risk models and enables proactive fraud prevention.
Best Practice Recommendations
To fully leverage the benefits of 3DS, Arcot recommends the following best practices:
Arcot Scorecard Review: Acrot offers a report that benchmarks your current 3DS performance against your peers, providing valuable insights for improvement.
Send 100% of transactions to 3DS: Ensure that all transactions are routed through 3DS to support enhanced decision-making.
Leverage Exemptions, Risk Scoring, and the Merchant Challenge Indicator: Merchants can leverage 3DS to enhance approval rates by:
- Using RCI Codes: Request Challenge Indicator (RCI) codes that help merchants communicate the transaction’s risk profile to issuers, suggesting whether a transaction should be challenged based on its risk assessment.
- Sharing Comprehensive Data: Providing extensive data fields during the transaction enables issuers to make informed decisions, increasing the likelihood of approval.
Conclusion
This article highlights the importance of adopting the 3DS best practices and leveraging advanced data science, optimizing challenge flows, and fostering better communication between merchants and issuers to achieve a seamless and secure payment experience for higher approval rates.
About Arcot
Arcot , the Payment Security division of Broadcom, authenticates shoppers’ identities during eCommerce payments for major merchants worldwide. Our technology combats eCommerce fraud and boosts approval rates through a comprehensive 3DS solution, leveraging a network of over 5,000 issuers to reduce false declines.
To explore how Arcot’s innovative and merchant-focused approach to 3-D Secure can enhance your business, or to request an Arcot merchant scorecard review for your portfolio, please contact:
N. AMERICA: Matt Scribner
UK / EMEA: Konrad Karczmarczyk
Upcoming Arcot 2024 Events in Europe
Join us and industry leaders from the 3DS ecosystem at the upcoming Arcot Summits. The primary objective is to enable collaboration between merchants and issuers to prevent eCommerce fraud and improve digital payment approval rates.
- Arcot Summit, Dublin. October 22, 2024 - Register Now
- Arcot Summit London. October 24, 2024 - Register Now