As merchants seek out better ways to defend themselves from rampant online fraud, some are pinning their hopes on a recent upgrade to the card brands’ 3-D Secure Authentication technology.
The 3-D Secure program, which aims to decrease online fraud by confirming a customer’s identity at checkout, has met criticism from merchants and consumers since the card networks introduced it more than a decade ago. The program adds an extra authentication step, and in its earliest form required customers to produce an extra password at checkout and before the transaction is approved.
Consumers didn’t like the program because they didn’t want to have to go through the extra trouble of creating another password to remember, and merchants didn’t like it because the added friction led to abandoned carts.
But now with EMV shifting fraud away from the point of sale and into the e-commerce space, proponents of 3-D Secure say it could serve as an important tool in mitigating e-commerce fraud, especially after EMVCo updated the technology last October to support app-based authentication and integration with digital wallets. Mastercard Identity Check, commonly called Selfie Pay, is also based on 3-D Secure.
James Prechtl is one merchant who was sold on 3-D Secure, even before the update. Prechtl owns Supplement Central, which sells nutritional supplements online and has been in business for 16 years.
Fraud has been a big hassle for his company, and many banks consider nutraceutical companies like his to be high-risk merchants.
At one point, Prechtl noticed $15,000 in chargebacks, or about 50 transactions per month. At that time, the business had been doing a lot of international volume, mainly in Brazil, and the company fell victim to a large credit card fraud ring at a time when it didn’t have anything in place to prevent it.
“It was a significant hit,” he says. His normal chargeback volume was $6,000 a year, or about 10 a month.
The company tried out a few different security providers until deciding on 3-D Secure.
Prechtl says 3-D Secure appealed to his business because it had dealt with so many stolen credit cards, which tends to be a problem in his area of business. He says the banks don’t typically promote it to merchants. “We found it on our own,” he says.
Prechtl started using a provider specializing in 3-D Secure and recently switched to Paay, a fraud protection tool that authenticates transactions via 3-D Secure.
Now he sees about one chargeback a month, totaling about $2,000 a year. Fewer buyers are being unnecessarily flagged, which means more orders can go through on time. And to produce less cart abandonment than previous versions of 3-D Secure did, the updated version relies on risk-based authentication, which means the card issuer determines whether the transaction is high or low risk. For a low-risk transaction, no authentication is required.
“We don’t have to hold back as many orders now,” he says, adding that as long as the company can verify that the customer is the actual cardholder, the order can go out. “It makes a much better experience for the customer. They’re not contacted and placed on hold or anything like that,” he says.
Yitz Mendlowitz, co-founder of Paay, says his company has worked to support the latest 3-D Secure so merchants can better protect themselves from fraud without a rise in cart abandonment.
That can be especially helpful to merchants like Supplement Central that are considered high-risk, even though many of their transactions don’t present the same risk level.
“It gives a lot of these high-risk merchants the ability to bring chargebacks down to a ratio that’s considered a lot more normal,” Mendlowitz says.