As internet penetration, globalization, and eCommerce continue to expand, credit and debit cards have become one of the most prevalent methods for online payments, accounting for 29% of all transactions. This statistic highlights that nearly one-third of online purchases fall under the category of card-not-present (CNP) transactions. In CNP transactions, neither the physical card nor the cardholder is present during the transaction. While CNP transactions offer consumers the convenience of making remote purchases, they also expose them to vulnerabilities such as cyber-attacks. In fact, CNP fraud is 81% more likely to occur compared to card-present fraud. It is, therefore, the responsibility of online merchants, particularly those facilitating CNP transactions, to prioritize enhanced security and fraud prevention. But how can web technology experts accomplish this? This is where 3DS, or 3D Secure, comes into play.
Utilizing 3DS can bolster the security of CNP transactions and reduce the risk of fraud. In this article, we will delve deeper into what 3DS entails, explore its components, outline the benefits it offers to web technology experts, and more. Read on to gain a comprehensive understanding of this vital security protocol.
What Is 3D Secure?
At its core, 3D Secure is a security protocol that introduces an additional layer of security into card-not-present transactions, whether they involve debit or credit cards. Its primary objective is to authenticate the payer through methods such as OTPs (One-Time Passwords) or biometrics, with the aim of mitigating fraud risks for both merchants and consumers.
The Components of 3D Secure
The 3DS authentication protocol involves three key domains:
The issuer domain represents the financial institution or bank that issued the card to the customer. It prompts the user to enter a password or employ another form of authentication to authorize the transaction.
Components of the issuer domain include:
Cardholder Browser: The customer initiates the security protocol by entering the required information.
Enrollment Server: This server assists customers in registering for the authentication process.
Access Control Server: Responsible for authenticating the card and cardholder’s identity.
Validation Server: This component validates the cardholder’s identity.
The acquirer domain pertains to the bank where the merchant’s or seller’s account is located. This bank receives the funds once the transaction is completed.
Components of the acquirer domain include:
Merchant plug-in: This plug-in facilitates the creation and processing of authentication messages for cardholders once the purchase is confirmed.
Signature validation server: Responsible for validating digital signatures.
The interoperability domain plays a crucial role in determining which network is required for executing the transaction.
Components of the interoperability domain include:
Directory server: This server verifies whether the account number is associated with any card scheme, forwarding the request to the access control server if needed.
Certificate authority: This component is responsible for generating and distributing SSL, public root hierarchy, and card scheme certificates to all domains.
What Is 3D Secure 2.0?
The initial version of 3DS, version 1.0, faced challenges such as user-unfriendliness and limited data sharing, which impacted the customer experience. In response to these shortcomings, 3DS 2.0 was introduced, offering significant improvements. Key features of 3DS 2.0 include:
Enhanced Shopping Experience: 3DS 2.0 streamlines the authentication of app-based transactions, providing a more seamless shopping experience, particularly for mobile app users.
Improved Data Sharing: The latest version of 3DS facilitates more effective data sharing between acquiring and issuing banks, enabling issuing banks to make more informed risk-related decisions.
Diverse Authentication Options: 3DS 2.0 offers customers the flexibility to authenticate risky transactions using OTPs or biometrics.
Single Authentication: The updated protocol reduces the need for redirects, guiding users through a single authentication flow to make transactions smoother and enhance the overall customer experience.
How Does the 3D Secure Authentication Process Work?
The process of 3D Secure transactions unfolds as follows:
The payment gateway communicates with the directory server to confirm whether the card is registered in the 3DS program.
The payment process is then redirected to the cardholder’s bank’s website.
The cardholder inputs card information and submits these details to their bank.
The 3D Secure protocol prompts the user to verify their identity by entering an OTP or biometric data.
After the user provides the required details, the authentication process returns to the payment gateway.
The payment gateway forwards transaction details to the bank.
The bank either approves or declines the transaction and conveys the response to the cardholder.
Advantages of 3D Secure for Web Technology Experts
Web technology experts can benefit in several ways from implementing 3DS:
Change of Liability: One of the most significant advantages is the shift in liability. With 3DS, the responsibility for handling fraud-related disputes or chargebacks shifts from merchants to card issuers. Card issuers assume responsibility for addressing fraud chargebacks, reducing the burden on merchants.
Regulatory Compliance: In numerous countries, web technology experts are obligated to incorporate multi-level authentication for payment verification. Implementing 3DS provides an effective means of meeting these legal requirements, ensuring compliance and averting potential consequences.
Reduced Fraud: 3DS introduces an additional layer of security to verify the identity of the customer, reducing the likelihood of fraud.
Protection from Chargebacks: By using 3DS, merchants can furnish evidence in cases where customers dispute or file chargebacks. This empowers merchants to safeguard themselves from fraud chargebacks, sparing them from unnecessary hassle.
Enhanced Customer Confidence: The implementation of 3DS enhances the security of payments on a web platform, a feature highly valued by customers. Secure transactions instill trust and confidence in your business, thereby boosting sales.
While implementing 3DS for added security may not be mandatory, it is a vital security protocol that all online businesses, especially those dealing with CNP transactions, should consider. It serves to prevent card-not-present fraud, shields merchants from chargebacks, ensures regulatory compliance, and instills trust among customers, among various other benefits. Therefore, whether you already operate an online business or are planning to establish one, be sure to enable 3DS for card payments.