3-D Secure Makes Payments Better for Merchants, Shoppers, Worse for Fraudsters

Success in today’s hyper-connected digital landscape boils down to two things: security and convenience.

And the success of digital payments and eCommerce in the 21st century also rests on those two pillars.

“Digital commerce is booming, it’s a nonstop train … and there’s a lot of things to consider as an industry to help battle the side effects of that growth,” Greg Esser, director of partnerships U.S. at Entersekt, told PYMNTS. “One immutable thing is fraud.”

“There’s a positive relationship between the growth in eCommerce sales volume and growth in eCommerce fraud,” Esser added, noting that proximately 15% of total retail sales are now eCommerce, a figure expected to climb to 16% in 2024 and potentially reach 20% to 22% by 2027.

Against this backdrop, the need for businesses to navigate the dual challenges of enhancing user experience while mitigating fraud by embracing advancements in authentication technologies like 3-D Secure (3DS) has emerged as paramount.

“We have to be pretty nimble on our toes to be able to counter any of the punches today’s increasingly sophisticated fraudsters may throw,” Esser said.

He emphasized the importance of taking a layered approach to fraud prevention, which includes tactics like biometrics, risk-based authentication, and EMV 3-D Secure. Embracing a multi-faceted strategy helps to deflect attacks and protect transactions more effectively.

Managing the Persistent Issue of Fraud in Digital Commerce

As eCommerce grows, so does the sophistication of fraudsters. Fortunately, solutions like 3DS, a pivotal tool in fraud prevention, have themselves evolved significantly.

Still, as Esser explained, because the initial rollout of 3-D Secure was marred by clunky user experiences, including cumbersome knowledge-based authentication methods, its present-day adoption is still “being stymied by historical context.”

However, recent advancements have streamlined these processes, leveraging intelligent data and biometrics to create a more seamless user experience.

“Today, issuers are becoming smarter and faster, they’re using more intelligent data to help create a user experience that is thoughtful, but it also is preferable by that consumer,” said Esser, noting that many issuers now allow consumers to choose their preferred authentication methods, such as biometrics, enhancing both security and user satisfaction.

And the integration of biometrics and intelligent data has significantly enhanced 3-D Secure. These technologies enable real-time, behavioral authentication, assessing factors like keystroke patterns and device behavior. This nuanced approach, Esser said, allows issuers to make informed decisions about transaction risk without introducing unnecessary friction.

The Role of Advancements in Authentication Technologies

At the same time, other next generation innovations like machine learning (ML) and artificial intelligence (AI) are revolutionizing fraud prevention capabilities and protocols.

These technologies consume and analyze vast amounts of data to predict and prevent fraudulent activities. However, effective data sharing between merchants and financial institutions is crucial for these systems to learn and improve, and Esser underscored the importance of collaboration in sharing data to enhance AI and machine learning models, ultimately leading to better fraud detection and prevention.

Looking ahead, he anticipates significant advancements in technologies like passkeys, buy now, pay later (BNPL) solutions and digital wallets. These innovations are poised to enhance the consumer experience by providing more secure and convenient payment options. Artificial intelligence will continue to play a critical role, becoming increasingly proficient in fraud detection as data sharing improves.

Still, from a merchant’s standpoint, adopting 3-D Secure and other fraud prevention tools can be challenging.

As Esser noted, historical hesitancy stemming from concerns about increased transaction friction and potential cart abandonment are still at the forefront of many merchant’s minds.

That’s why proving the effectiveness of these tools and ensuring they do not negatively impact user experience is key to increasing merchant adoption. Esser highlighted the importance of sending a higher percentage of transactions through 3-D Secure to provide issuers with better data, leading to more accurate fraud assessments.

Entersekt is committed to driving innovation in authentication technology by enhancing the collaboration between merchants and issuers, Esser said. He envisions a future landscape where Context Aware Authentication, leveraging data across different channels, becomes the norm. This approach will help create a more seamless and secure user experience, and ultimately drive digital commerce forward.