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What is 3D secure ? What are the advantages for sellers and customers ?

27 March 2017

Business Insight

3-D Secure is a protocol designed to make using your card to buy things on the internet more secure. It is also known under the brand names “Verified by Visa” and “MasterCard SecureCode”. It is designed both to reassure consumers and to reduce fraud.

 

When a customer makes a payment with 3-D Secure, the seller’s bank or payment institution contacts the customer’s card issuer which then confirms the identity of the customer, usually by sending a code via SMS. Banks are free to choose methods other than a code, such as asking for further information or providing a device to automatically generate codes. This interaction is directly between the customer and his or her bank, the seller and the seller’s bank do not issue or see the code.

 

This provides the customer with a sense of security and prevents fraudsters from making a purchase with stolen card details.

 

The bank also has the security of knowing they have verified the payment with the customer. When 3D-Secure is not used, a customer could claim that they were not in possession of their card and it was, in fact, a fraudulent transaction. In which case the bank will likely believe the customer and issue a chargeback, which can then cost the merchant money in fees.

 

If, on the other hand, a customer makes a payment using 3-D Secure and receives a code on their telephone it is assumed that the customer has the card and phone in his or her possession.

 

Many banks outsource the verification process so the domain name can change at the moment of the verification although this is avoided by instead having the verification page appear in a frame on the website.

 

When a seller does not use 3-D Secure for a sale and the card owner claims that he or she did not actually make the purchase, the bank will likely believe the claim and directly take the money from the seller, the seller is then responsible for proving the sale was not fraudulent. With 3-D Secure the onus is on the bank who did the verification and authorised the payment who may just ask the vendor to show the receipt and proof of delivery.

 

Summary

 

Advantages for the seller:

  • less chance of chargeback for merchants
  • card issuing bank can verify payment
  • reassures customers so they feel comfortable spending money
  • transfers some responsibility from merchant to bank

 

Disadvantages:

  • often requires access to a phone (inconvenient in the case of a lost phone or changed number)
  • the additional step of adding verification, especially when it involves receiving an SMS while shopping from a phone, may interrupt the flow
  • merchants sometimes have to pay extra to have access to 3-D Secure

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