Recent reports indicate an uptick in fraudsters targeting large FIs, and headlines surrounding security breaches and cyberattacks fill the news on a near-daily basis. According to the International Monetary Fund, banks and FIs could lose as much as $100 billion to cybercrime every year. As fraudsters continue to chip away at profits and threaten firms’ financial stability, security providers and banks alike are investing in solutions compliant with 3D Secure (3DS), protocols, which protect both consumers and the companies serving them.
Visa and Mastercard designed the 3DS protocols and provide them under the names Verified by Visa and Mastercard Secure Code. Both solutions provide increased fraud protection to online transactions made via debit or credit cards. 3DS was initially introduced in 2001, and has continued to evolve over the past 17 years. Now, banks and merchants are looking to adopt the service’s next generation: 3DS 2.0.
The evolution of payment protection
3DS 2.0 offers a seamless and convenient payment experience to customers. It eliminates many of the features that consumers found most interruptive or complicated, including pop-up windows that asked consumers to input information. Instead, these processes have been integrated into the site’s existing shopping and payment experiences. The new protocols also better integrate with omnichannel features and loyalty programs, which have become popular with consumers.
Improving customer experiences was not the sole focus of 3DS 2.0’s upgrades, however. The changes also include enhanced fraud protections for merchants. For example, 3DS 2.0 uses authentication data, artificial intelligence and machine learning to review, approve or flag transactions as suspicious in real time. What’s more, merchants, FIs, payment processors and other players can share transaction data, allowing them to get a clearer picture of the traits that separate legitimate transactions from fraudulent ones.
Perhaps more important to the evolution of 3DS 2.0 was the migration of consumers to mobile shopping and banking transactions. Recently published research has found that 76.3 percent of consumers now prefer to bank via mobile apps. Other studies indicate that mobile and connected banking offerings are most popular among millennials and other young consumers, meaning mobile banking apps’ popularity is likely to continue — and increase — in the coming years.
Consumers expect these mobile transactions to happen without adding pain points, too, necessitating the use of frictionless flow transactions, or transactions uninterrupted by security protocols. This requires earlier risk evaluation and a richer collection of data, two elements provided by 3DS 2.0
3DS drawbacks and the future of authentication
3DS 2.0 may be an improvement over its earlier iterations, but it’s not without imperfections. Some critics note that increased customer convenience will likely lead to growth in the number of online transactions. That might sound like music to eCommerce merchants’ ears, but an increase in the number of transactions can also make it easier for cybercriminals to slip fraudulent transactions in among the legitimate ones. Others point out that while 3DS 2.0 encourages brand loyalty and is easy to use, it still leaves merchants vulnerable to chargebacks.
Despite these downsides, 3DS 2.0 remains crucial in protecting payments and the customers making them. These issues can be mitigated by partnering with solution providers equipped to help the company with 3DS 2.0 protocols and solutions powered by neural network models, risk-based authentication, dynamic rules engines and other emerging tools and technologies.
With the right partners in place, the risk-based nature and data analytics of 3DS 2.0 capabilities can allow banks and FIs to review and verify transactions without requiring customer intervention. This will become increasingly important as more business is conducted online, where convenience and user experience are valued over almost all other elements.
As solution providers and other partners help in the fight against fraud, banks and other financial firms would be well-served to adopt 3DS 2.0 solutions going forward.