With slightly more than a week to go before the deadline for EMV transition in the United States hits on Oct. 1, the payments industry continues to focus on how to use technology to prevent hacks. One solution that is being discussed more and more now is 3-D Secure protocols (3DS), and specifically how it works to short-circuit card-not-present payment (CNP) fraud.
In terms of data safety, the advantages of this technology are, some believe, indisputable. It suffers from a widespread merchant perception that it keeps data safe at the expense of sales conversion.
In a recent white paper titled “Understanding the Impacts of Consumer Authentication on Approved Transactions,” prepared through efforts among Chargelytics Consulting, CardinalCommerce and Amtrak, the triumvirate sought to study the impact of Cardinal Consumer Authentication (CCA) on the types and number of orders that were ultimately approved by both issuing banks and merchants.
CCA – as a product – adds levels of data to the 3DS platform, which in turn helps boost transaction confidence, according to the companies. And in addition, the merchant has a strong measure of control, as it is able to determine when to use (and not use) 3DS in relation to different factors such as consumer experience and the risk tied to the actual transaction.
Through the prism of this study, the overarching theme was to determine whether using a program with CCA’s flexibility would translate into a greater number of transactions for a merchant – in this case, Amtrak, the national railroad with operations in 46 states — with downward pressure on shopping cart abandonment due to negative consumer experiences.
According to the white paper, the study looked at the authorization rate from all issuing banks, and also the number of orders that were approved and not subsequently canceled by the merchant on fraud suspicion. In summation, the research found that Amtrak benefitted from increased orders on the issuer side, and decreased declines from merchants.
The payments landscape is shifting so that CNP is coming into sharper focus. The deadline for EMV and chip-enabled cards in the U.S. is practically here, and it has been a foregone conclusion that EMV conversions will almost certainly lead to a meaningful boost in CNP fraud rates as cybercriminals look for other lucrative avenues of fraud.
Adoption of 3DS also is enjoying a boost from around the globe, as regions such as Africa and India have mandated the technology’s use, and the European Central Bank is mulling adoption. Individual merchants have been spurred to embrace 3DS as both Visa and MasterCard have incentives in place that range from liability shifts to lower interchange rates.
3DS technology has evolved over more than a decade since its original introduction by Visa, with its current incarnation standing as an authentication system that allows confirmation of an online shopper’s identity during the pre-authorization process. The issuer has a series of choices to complete that confirmation, including pre-determined, or one-time, passwords. There can also be IP address or even device authentication.
Despite the benefits for the issuers using this CNP protocol, with more secure transactions and financial incentives from the card issuers themselves, some merchants balk at using 3DS, as it has been perceived to cause customer “friction” at the end of the transaction, the white paper found – most profoundly when a transaction is denied. Yet a bit of education goes a long way, as a separate Cardinal study found that with knowledge of the enhanced 3DS, the number of merchants purposefully not using that technology due to fear of lost sales dropped from 20 percent to 16 percent.
Even taken in isolation, the merchant benefits remain tangible: Amtrak showed a 2.4 percent increase on all authorizations using Verified by Visa (a 3DS system). Broken down further, the data show that the total number of orders approved during fraud review processes jumped by 5 percentage points, which represents a 69 percent improvement rate. Visa/MasterCard fraud chargebacks dropped by as much as 80 percent.
To download the white paper, click here.