Did 3DS 2.0 Really Make a Big Change?
The world of e-commerce has experienced a significant change with the introduction of 3DS 2.0. But, did it really make a big change? To answer this question, we first need to understand what 3DS is and how it works.
What is 3DS?
3DS, or 3D Secure, is a security protocol used in online transactions with credit and debit cards. Its main objective is to provide an additional layer of security for online transactions, authenticating the cardholder during the transaction. This is achieved through a three-part verification process involving the card issuer, the acquirer, and the cardholder.
How Does 3DS Work?
When a cardholder makes an online transaction, the 3DS system verifies the identity of the cardholder. This is done through an authentication process that may include requesting a password, verifying a text message sent to a registered mobile phone, or confirmation through a banking app.
The Shift to 3DS 2.0
3DS 2.0 was introduced to address some of the issues associated with the previous version of the system. In particular, the previous version generated a lot of unnecessary friction in transactions that did not present fraudulent risk patterns, resulting in abandonments at the payment stage and false declines.
3DS 2.0 has changed this, eliminating unnecessary friction in low-risk transactions, but generating friction in high-risk orders. This has led some to question whether the change has really been beneficial.
Where is the Big Change?
The reality is that there are fraud prevention solutions that can detect low-risk orders and generate no friction when making the real-time decision to accept the order. Therefore, the big change is not necessarily in the elimination of friction in low-risk transactions.
The real problem exists in high-risk orders. Today, 3DS 2.0 can generate friction, abandonment at the payment stage, and false declines in these transactions. However, fraud prevention solutions that make real-time decisions at checkout can also generate additional verification on the order or simply cancel it.
3DS in the United States and Latin America
Regarding the implementation and use of 3DS and 3DS 2.0 in the United States and Latin America, the data are varied. In the United States, the adoption of 3DS has been relatively slow compared to other regions, partly due to the prevalence of other forms of authentication and transaction security. However, with the increase in online fraud and CNP (Card Not Present) transactions, the adoption of 3DS and 3DS 2.0 is expected to increase.
In Latin America, the adoption of 3DS and 3DS 2.0 has been faster, driven in part by the rapid growth of e-commerce in the region. However, as elsewhere, friction in the payment process remains a challenge, and merchants are looking for ways to minimize this friction while maintaining high levels of security.
The Solution: Post-Payment Verification
An innovative solution in fraud prevention is verification after payment. This method incorporates the process of verifying the customer’s identity after the customer has made the payment, allowing merchants to obtain the necessary information to validate the order and significantly reduce check out abandonment rates. By performing verification based on the level of risk, the customer experience is further improved and check out abandonment is further reduced.
This approach is particularly compelling when considering the high rate of transaction abandonment associated with more traditional methods of verification. For instance, 17% of US online shoppers have abandoned an order in the past quarter solely due to a “too long / complicated checkout process,” as reported by a recent study. Furthermore, another study by globalbankingandfinance.com indicates that the check out abandonment rate during 3D Secure (3DS) verification is between 17-20%, with 20-22% of users failing the process.
Despite being a security protocol intended to reduce fraud, 3DS has historically created significant friction, contributing to higher check out abandonment rates. In 2017, only 18% of US-based transactions leveraged 3DS because of this friction. The abandonment rates when using 3DS could even exceed 50%. These losses are motivating merchants to avoid implementing 3DS if possible or even to steer clear of specific banks.
Therefore, the implementation of post-payment verification strategies appears to be a promising method to retain sales that would have otherwise been lost to complex checkout processes and intrusive verification methods.
In summary, 3DS 2.0 has made a significant change in the way online transactions are handled, but significant obstacles still exist, leading to substantial losses in sales. Friction in the payment process remains a problem, especially for high-risk transactions. However, with solutions like verification after payment, merchants can minimize this friction and improve the customer experience, all while maintaining high levels of security.
