The advent of 3 Domain Server, known more commonly as 3-D Secure, provides an additional security layer for online transactions taking place on a merchant platform. It’s another useful tool in the everyday battle with Credit Card Chargebacks.
The 3-D messaging protocol enables customers to authenticate themselves with their card issuer when making Card-Not-Present (CNP) e-commerce purchases. This additional security layer helps to prevent unauthorised CNP payments and protects merchants from exposure to fraud.
When a customer makes a payment using a card where the issuing bank is enrolled in 3-D Secure, the transaction will trigger the 3-D Secure authentication process, with the user being directed to the authentication page of the card-issuing bank. The customer is then prompted to provide further information to verify the transaction, with this information varying depending on the bank.
Where active and enabled, it protects merchants from fraud chargebacks, with the liability instead being placed on the card-issuing bank. It is currently supported by all major card schemes in various iterations – Visa’s Verified by Visa, MasterCard’s SecureCode, AMEX’s SafeKey, JCB International’s J/Secure and Diners Club’s Protect Buy.
3-D Secure involves all three parties included in the transaction verification process: from the business where the purchase is being made to the acquiring bank and then the card issuer. Its primary goal is to detect and prevent potentially fraudulent transactions by verifying the customer’s identity and ensuring that the cardholder is actually taking part in the transaction.
From a merchant’s perspective, triggering 3-D Secure is very much discretionary. Rule management functions allow the merchant to be selective about how they use the tool; for instance, merchants can select to only trigger it for transactions over a certain amount, or for transactions from specific countries or regions. Although 3-D Secure is not mandatory, its usage in Europe is growing and growing.
The Benefits of 3-D Secure
There are a number of benefits to be gained from using 3-D Secure on a merchant site. First and foremost, it is the only fraud prevention scheme on the market that offers companies liability cover for transactions that are considered verified by the checks.
Benefits of 3-D Secure for merchants:
- Reduces chargebacks
- Increases customer satisfaction
- Uses SSL during transaction to provide a secure server
- Decreases disputes involving credit card fraud
- Increases trust in international transactions
Benefits of 3-D Secure for buyers:
- Added layer of security during online transactions
- Uses SSL encryption providing a secure server for the transaction
- Adds more protection by requiring confirmation of identity
- Reduces the risk of fraud
Credit Card Chargebacks Can Still Occur
While the liability does shift away from the merchant for any successfully verified transaction, 3-D Secure is by no means a panacea for credit card chargeback prevention.
There are a number of chargeback reason codes that 3-D Secure does not cover, for which the merchant will still be responsible.
For example, 3-D Secure does not protect merchants from chargebacks that are a result of a legitimate customer dispute, such as a buyer not receiving their product or service as advertised, or when a customer is charged for a product they never received.
As a merchant, using 3-D Secure will certainly help reduce the risk of fraud and credit card chargebacks; however, despite its effectiveness, it will never completely stop credit card fraud or chargebacks. Instead of thinking of 3-D Secure as the golden ticket, it should be viewed and used as part of a wider fraud detection and chargeback prevention strategy.