In the digital age, online safety is more important than ever before. Of course, we know about using a VPN, not giving out information willingly, and never sharing passwords, but what about payment security? That’s where 3D secure comes in.
When paying for goods and services online, the 3D secure payment gateway becomes an invaluable tool for both customers and businesses. For high-risk businesses navigating payment processing challenges, having an extra layer of security is vital, and this isn’t a small tool either. It is estimated that the global 3D secure payment market size was $1.10 billion in 2022, with compound annual growth of around 12.7% expected from 2023 to 2030.
With increasingly sophisticated fraud methods appearing all the time, it’s vital to protect yourself and your business against risk. With that in mind, this guide will give you all the information you need to fully understand the 3D secure payment gateway.
The Evolution of 3D Secure Authentication
3D secure was initially brought into the mainstream by Visa in 2001, with the secure Visa system. Since that time, almost all major card issuers and processors have adopted the system, and the underlying technology has advanced rapidly.
From 3D Secure 1.0 to 2.0
The biggest change to 3D secure has been the transition from version 1.0 to 2.0, which has done a lot to address many problematic issues, especially in terms of compatibility with mobile devices. This new version is a lot more user-friendly, allowing it to integrate seamlessly with the entire payment process.
One of the clearest improvements is that 2.0 supports 10 times more data elements for risk assessment. Sure, it makes it an instantly safer option. Additionally, ‘delegated authentication’ allows merchants to use their own methods – a key point for high-risk businesses who want to increase security to a greater level.
The table below gives some useful comparisons between versions 1.0 and 2.0, clearly demonstrating how much more secure this new version is.
| Feature | 3D Secure 1.0 | 3D Secure 2.0 |
| Authentication Method | Static password | Risk-based, biometrics |
| Mobile Optimization | Limited | Fully optimized |
| Data Points for Risk Assessment | Limited | 10x more |
| User Experience | Often disruptive | Potentially frictionless |
| Merchant Control | Limited | Increased flexibility |
Friction Reduction
Customers often criticized the first version of 3D secure for its difficult processes. With that in mind, the new version focuses on a smoother process. This is due to risk-based authentication, which reduces the need for extra customer input by using machine learning algorithms to assess transaction risk.
Low-risk transactions are automatically approved by the system, while high-risk transactions are subject to other methods, including one-time passwords and biometrics.
Mobile Optimization
Adapting the 3D Secure payment gateway for mobile use has significantly expanded its reach.
Most people use their phones for almost everything these days, including purchasing goods and services. The first version of 3D secure wasn’t designed with this entirely in mind, yet version 2.0 is. As a result, it works well across all devices, creating a smoother experience for customers. This also includes mobile-specific methods for authentication, like facial recognition or fingerprints, along with mobile wallet integration.
The Role of EMVCo
Now, let’s talk about what EMVCo has to do with all of this. EMVCo is a global technical body and it is jointly owned by all major card networks. It has played a vital role in 3D secure protocol standardization, to ensure consistency across different systems and networks.
EMVCo’s work means that 3D secure now works with all major card networks, including secure MasterCard and Visa to name two of the biggest ones.
The Mechanics of 3D Secure Authentication
Knowing what something is, is one thing, yet understanding how it works is another. In this section, let’s learn more about how 3D secure authentication works to ensure a smooth experience for both your business and your customers.
The Three Domains
3D Secure consists of three domains. These are the issuer domain, the acquirer domain, and the interoperability domain. All three play a specialized role in the entire authentication process, creating a fully streamlined experience.
Issuer Domain
The first is the issuer domain. The card-issuing bank manages this part and it authenticates the cardholder. At this point, customer ID is verified by one of several methods, such as one-time passwords, knowledge-based questions, or biometrics.
The issuer domain also holds historical data about transactions made by each cardholder, and this information is used during risk assessment.
Acquirer Domain
Next, we have the acquirer domain which involves two parties – the merchant and their bank. This domain is responsible for initiating the 3D secure process. At this point, the merchant’s payment gateway or the actual 3D secure server initiates the request for authentication, collecting and sending data to the issuer domain for risk assessment. This domain handles the response and decides whether or not to continue the transaction.
Interoperability Domain
Finally, the interoperability domain is managed by card networks. It is a connection between the issuer and acquirer domains and ensures smooth transmission of data between all parties.
This domain is responsible for the directory server which sends requests to the appropriate issuer. As the name suggests, it also ensures compatibility between different 3D Secure versions.
Risk-Based Authentication
Risk-based authentication is one of the biggest points of 3D secure 2.0, and what helps it stand out from the previous version. It uses complex algorithms to look at each transaction’s risk level and decide whether or not additional authentication is needed or not.
Within this, it analyzes more than 100 different data points to assess risk, including transaction history, device information, and patterns of behavior from the user. Machine learning models are employed to help the system learn, increasing its effectiveness over time.
3D Secure in High-Risk Businesses
As a high-risk business, you no doubt know about the challenges that come with this classification. It doesn’t make life easy, that’s for sure. Within that, specific high-risk industries rely heavily upon 3D Secure as an added security step. This is particularly important in light of the increased risk of chargebacks or fraud in high-risk businesses.
Let’s take a deeper look at how 3D Secure is used in specific high-risk industries to help reduce fraud and improve their overall reputation in the eyes of financial institutions.
Travel Industry Implementation
The travel industry is considered high-risk and requires the use of 3D Secure authentication in payment processing.
The travel industry is a solid high-risk classification, mainly due to high-value transactions, a very high chance of chargebacks, and complex booking procedures. All of this makes 3D secure a must-do, along with specialized travel agency merchant account services to streamline the entire process. All this helps businesses in this sector reduce risks associated with fraud and last-minute cancellations.
In this case, using 3D Secure quickly identifies the person’s identity, making it far less likely that an unauthorized person is behind it. The authentication process is seamlessly integrated in the entire booking process, making it quick and easy for both the business and the customer.
Another plus point is that 3D Secure authentication can easily move liability for fraudulent transactions from the merchant themselves to the card issuer. Of course, the extra authentication step is also a big deterrent for false chargeback claims and disputes. Finally, data obtained during the process can be used as evidence in disputes that do make it through.
Online Gaming and Gambling
The online gaming and gambling industry is another high-risk area that frequently uses 3D Secure. We can also talk about sport betting payment solutions for businesses that offer these services. Both areas have robust regulations placed upon them, along with a high chance of fraud. Unsurprisingly, these are the reasons for the high-risk label, and requires the use of 3D security to ensure security and compliance.
Age Verification
One of the key areas where 3D Secure is very helpful is in verifying user age. It can do this by linking to the card issuer data, providing an extra check. Of course, one of the main regulations imposed upon gambling businesses is that users must be of legal age. From there, the system can flag any users who may be underage and ask for additional verification. This entire process can easily be integrated into the initial registration stage, or during the deposit point.
The Future of 3D Secure and Payment Authentication
As the 3D Secure payment gateway has updated from version 1.0 to 2.0, it continues to develop thanks to new technology. Many future developments are likely to focus on making the user experience even smoother, while also ensuring that security remains robust. It’s likely that 3D Secure will also integrate with other technologies, like blockchain and AI for stronger protection.
Biometric Integration
Biometric authentication is a very solid way to boost security and ensure a smoother user experience. This can be done through facial recognition and fingerprint scans to name just two, creating a more convenient and secure route. Of course, biometrics provide a much higher level of security than password methods, and data is usually stored on the user’s device, and processed at that point also.
Blockchain and 3D Secure
Combining blockchain and 3D Secure has a promising outlook and has the potential to overhaul the entire authentication process. Blockchain is already a very secure option, and as it’s decentralized, it offers unique methods for verifying identity. For instance, it could allow users to choose the information they want to disclose, while using cryptographic proof of identity without actually disclosing unnecessary information.
Additionally, blockchain provides immutable transaction records and of any attempts at authentication. It’s also possible to use smart contracts to automate parts of the process, making it even more streamlined.
The table below gives more information on how blockchain enhanced-3D Secure could look.
| Feature | Traditional 3D Secure | Blockchain-Enhanced 3D Secure |
| Data Storage | Centralized | Decentralized |
| Identity Control | Issuer-centric | User-centric |
| Fraud Prevention | Rule-based | Consensus-based |
| Privacy | Limited | Enhanced |
| Scalability | Varies | Potentially higher |
Cross-Border Transactions and 3D Secure
Global ecommerce merchant services have grown, and within that there is a need to use 3D Secure to add even more security to the situation. However, there are complex challenges to overcome here, including differences in regulations across borders.
Regulatory Compliance Across Borders
When you trade across borders, you don’t only need to ensure you follow the regulations in your own area, but those in the jurisdiction you’re selling to. Of course, to complicate matters, different regions all have their own varying rules when it comes to payment authentication. It’s therefore vital that you understand and follow these regulations in all markets you sell within.
Strong Customer Authentication (SCA)
Europe has its own regulations, called PSD2 and these require SCA, or Strong Customer Authentication. Within this, many online transactions require two-factor authentication, yet 3D Secure 2.0 is designed to meet these regulations.
Currency Conversion and 3D Secure
The 3D payment gateway has adapted to ensure smooth transactions across borders.
One of the biggest challenges when selling goods and services internationally is currency conversions and this is something that 3D Secure has adapted to. However, it does make the process slightly more complicated as currency conversion rates must be very clearly stated during the process. Exchange rates also fluctuate regularly, and these can impact risk assessment methods within this type of transaction.
If you regularly sell internationally, streamlining multi-currency payments can enhance your 3D Secure implementation and ensure stronger security on both sides. PayCompass also offers multi-currency accounts, accepting payments worldwide in over 170 countries. In fact, this eases the waters in this regard, making it simple to receive payments in a number of different countries, and allowing your business to grow.
The Impact of 3D Secure on Conversion Rates
It’s true that 3D Secure has a strong effect on the security of transactions, but it can affect ecommerce conversion rates in different ways, particularly by adding extra steps. For that reason, it’s important to get the right balance between strong authentication and an easy checkout process.
Balancing Security and User Experience
The key is to ensure you hit the right balance between security and a smooth experience for your customers. After all, if the process is too long or difficult, they’re simply not going to do business with you. A good way to do this is to use risk-based authentication within 3D Secure systems. This can help reduce time and effort, particularly for low-value transactions. In this case, the system will automatically accept them.
Sure, the interface should be easy to use and optimized for mobile use. All this saves time and maintains conversion rates during the process.
A/B Testing 3D Secure Implementation
Careful A/B testing is a good route for optimizing your 3D Secure setup. This will ensure your processes are as secure as possible while cutting out unnecessary, time-consuming steps. This testing approach can help you compare different routes, such as customer location, device, type, and transaction value, allowing you to find the best option for your customers and your own needs.
Industry-Specific Conversion Impacts
The situation is further complicated by the fact that conversion rates can vary across different transaction types and entire sectors. For instance, high-risk industries, such as continuity subscription merchants, may benefit from 3D Secure systems and therefore notice better conversion rates due to increased customer trust.
However, industries that often see low-value transactions need to ensure a careful balance to ensure customer trust. A lower level of security may cause concern within your customer base, causing them to think twice before making a purchase. Additionally, it’s vital to take into account seasonal variations in rates.
Emerging Technologies and 3D Secure
Technology is always switching and changing and with new advancements comes a range of opportunities and challenges. There are many new technologies on the horizon that may affect 3D Secure beneficially, creating new authentication methods and boosting the entire customer experience.
Let’s explore some major ones.
Artificial Intelligence in Fraud Detection
AI is everywhere, and for good reason. Artificial intelligence-powered systems can completely revolutionize the 3D Secure payment gateway. Highly sophisticated algorithms are able to analyze huge amounts of data in lightning fast times, detecting potentially fraudulent transactions while ensuring a smooth customer experience.
Behavioral Biometrics
Within this, AI can also look at behavioral patterns to authenticate payments without the user having to do anything. This can streamline the process and make everything easier on the customer, boosting satisfaction. Such patterns can include mouse movements, typing patterns, and how a customer handles their device.
Internet of Things (IoT) and 3D Secure
IoT devices are becoming more common and therefore 3D Secure protocols have had to adapt. Such devices include smartwatches and smart home devices, allowing customers to make payments anywhere, anytime. Integrated authentication systems ensure high security of payments across connected devices.
However, there are challenges here too, mostly due to these devices having limited user interfaces. This brings the need for new authentication methods, with fingerprinting being a common option. As time goes on, and as these devices develop even more, new 3D Secure protocols are likely to appear.
Voice-Activated Payments
3D Secure systems can also be used alongside voice-activated payment systems. Again, this creates opportunities and challenges. Such systems need to be designed with a balance of usability and security in mind, while integration with smart home systems are likely to be used by more than one person.
PayCompass & 3D Secure Payment Gateways
By now, it’s clear that 3D Secure is a very positive addition to the payment processing world, yet there is also a need for careful adaptation to certain situations. Boosting security is certainly beneficial for both customers and businesses, but there is always more to be done.
With that in mind, PayCompass can help. Our merchant services offer 3D Secure payment gateways as standard, adding peace of mind to your transactions. We designed our merchant accounts with high-risk businesses in mind, because we understand the unique challenges you face every day. From chargeback protection to a robust and streamlined platform to handle high-risk transactions, we’ve got you covered, along with the latest fraud prevention and 3D Secure protocols. And there’s more: our real-time transaction monitoring boosts security to another level, giving you peace of mind during your payment processing activities.
Learnings Recap
Throughout this guide, we’ve talked about what is 3D Secure and how it works. We’ve also talked about the benefits for high-risk businesses, along with the new additions and technologies that may change how it works in the future. It’s clear that there have been many changes to the 3D Secure system since its first appearance, and version 2.0 has certainly helped boost the entire user experience while balancing security.
The 3D Secure system consists of three domains: issuer, acquirer, and interoperability, and all three work together to complete the process successfully. As new technologies develop, it’s likely that many of these will appear within 3D Secure authentication systems, including AI, blockchain, and IoT.
At PayCompass, we understand the changing face of payment processing, both from a technology and business perspective. We know that you need to be 100% sure that your payments are processed quickly, securely, and in the easiest way possible, and that’s exactly what our specialized merchant accounts are designed to do. After all, choosing the right high-risk merchant service provider is half the battle.
So, if you’re ready to overcome the challenges that work alongside your business’ high-risk label, fill out our contact form today. From there, one of our knowledgeable experts will be in touch to revolutionize your payment processing situation.
