Why is 3-D Secure Authentication Protocol Important for Merchants?

April 22, 2022 | Author: Ashley Brown

3-D secure authentication functionality helps you add an extra layer of protection for card transactions in card-not-present scenarios. This feature allows a cardholder to verify its identity to avoid payment fraud, prevent unauthorized transactions, and reduce chargebacks. Keep reading to understand what 3-D secure authentication is and why it is a must for your online store. 

Due to the rising popularity of eCommerce sites, several card-based transactions have been replaced with online ones. This has led to the rise in card-not-present (CNP) payments which provide greater convenience for both customers and merchants. Moreover, merchants don’t need to set up physical stores or hire someone for accepting payments.  

However, the CNP transaction does not have the card and cardholder and therefore, it becomes difficult to verify the identity of the person making the payment and validate its authenticity. While chip readers and PIN-pad devices can be used to authenticate a card-present payment, those security practices are not present for CNP transactions. Therefore, CNP transactions must employ robust authentication measures during the transaction process that are specific to the channel through which payments are being accepted.

The Introduction of Strong Customer Authentication (SCA) 

To combat the risk of identity theft, fraud, and other devious attempts related to these types of payments, card brands, and other companies have launched additional authorization technologies. One such technique is ensuring the authenticity of CNP transactions is strong customer authentication (SCA). The EU Revised Directive on Payment Services (PSD2) established the SCA standard, as it requires a type of multifactor authentication (MFA) to be used to complete a CNP payment process.  

First introduced in 2007 as the Payment Services Directive (PSD), the European Commission-administered PSD2 governs payment service providers across the European Economic Area. The PSD2’s SCA control is specifically concerned with employing MFA to keep customers, merchants, and banks safe against fraudulent payments. It is usually fulfilled with the use of 3-D secure authentication technology.

What is 3-D Secure Authentication? 

3-D Secure authentication is a security standard used to validate users. This adds an extra layer of protection for payment card transactions in card-not-present scenarios. It was formulated to allow a cardholder to verify its identity to prevent online payment fraud and unauthorized transactions, and lessen chargebacks. 

3-D Secure Authentication Protocol Important for Merchants

This security measure is used across Europe due to PSD2’s SCA requirement. However, it is also being used in other countries such as India and South Africa. Many card brands such as the members of EMVCo—Visa, Mastercard, American Express, Discover, UnionPay, and JCB have adopted different versions of this security protocol, which has led to the development of 3-D Security 2.0 (3DS2). 

Key Elements of 3-D Secure Authentication 

The main objective of 3-D secure authentication is to add an extra step to the financial authorization process by verifying the cardholder. It works based on a three-domain model, which includes: 

Acquirer Domain – It is the domain of the acquiring bank and merchant who will accept the payment.

Issuer Domain – It is the domain of the issuing bank that has provided the card for payment 

Interoperability Domain – These are the systems used to support the 3DS procedure by letting entities in the transaction communicate and share information. 

Furthermore, the 3-D secure authentication mechanism uses the Secure Sockets Layer (SSL) protocol to send Extensible Markup Language (XML) messages with user authentication, offering digital certificates to validate the identity of all entities involved in the transaction. This takes security to the next level.

The Working of 3-D Secure 2.0 Version Explained 

Released in 2015, the most recent version of this security protocol supports a less intrusive authentication process to lower the cart abandonment rates that were taking place during the original 3DS, when users were redirected to the website of the issuing bank to validate transactions.

But now, merchants need to send authentication information along with the payment card details to check the legitimacy of the transaction. This process takes place invisibly to the user and verifies the payment unless the issuer identifies a reason to interrogate the authenticity of the transaction. 

If any suspicious behaviour or an unknown device flags the transaction, the user receives a text message or confirmation code through an app to authenticate his/her identity, instead of being redirected to a bank’s website to enter the password linked with the card. This ensures a much less disruptive user experience.

The Need for Integrating 3-D Secure Authentication Protocols 

Article 97(1) of PSD2 demands the use of SCA in scenarios where a customer “accesses its payment account online,” “initiates an electronic payment transaction,” or “carries out any action through a remote channel which may imply a risk of payment fraud or other abuses.”

This includes almost all types of eCommerce, which means SCA is a must for entities doing business in the EU and European Economic Area (EEA). So, if you’re running an eCommerce business in the EU, you will need 3-D secure authentication technology for your online transactions.

Since 3DS is implemented to meet this compliance obligation, providers need to promote 3DS and other SCA methodologies. As a leading Magento eCommerce development company, we can integrate 3-D secure authentication technology into your store. This will ensure the greatest flexibility and regulatory compliance of your store.

You can hire Magento 2 developers from us to integrate payment solutions or any other support related to your Magento store. Get in touch with your requirements today!

FAQs

Q.1. How is 3-D secure authentication implemented? 

Ans. Here are the steps to implement 3-D secure authentication: 

1. The customer enters their card information 

2. The customer’s bank then examines the request and can verify and complete 3D Secure at this step.  

3. If required by the customer’s bank, the customer needs to complete an additional user authentication step. 

Q.2. How do I know if an eCommerce website is 3-D Secure compliant?

Ans. Only 3-D secure eCommerce sites will request a password for user authentication purposes. If a merchant is 3-D secure compliant, you can see the Verified by MasterCard or Visa SecureCode logo on the website.  

For more questions, feel free to ask our Magento experts.