How 3DS2 Payments Provide More than Just Compliance
Offering 3DS2 payments is worth much more value than simply complying with payment directives like PSD2 - they can lower chargebacks and increase conversion rates without disrupting the customer experience
- With 3DS2, transactions can be authenticated with zero friction during checkout
- 3DS2 authentication can reduce chargebacks by up to 40%
- 3DS2 payments can increase card processing approval rates by 10% or more
- Merchants using 29 Next pay 0 transaction fees for all 3DS2 payments
Wiring up payments is one of the more critical and challenging aspects of DTC ecommerce.
Merchants work hard to optimize their payment offerings and processes, striving to improve conversion rates and reduce time and friction at checkout, while also balancing their efforts against the risk of consumer fraud.
New payment services are launching and security regulations are changing constantly, so DTC merchants who fail to continually optimize payment processes might find themselves facing problems. Lower conversion rates, higher numbers of chargebacks from their customers, and the risk of “friendly fraud”.
The best solution for DTC brands today is to protect payments with 3DS2. And for merchants 29 Next, payments through 29 Next can be protected by 3DS2 authentication at no extra cost.
So, how do you do just that? Below we’ll explore just what 3DS2 is and what benefits you can expect from offering 3DS2-protected payments on your 29 Next store.
What is 3DS2?
Remember 3D-Secure version 1? That was the old payment flow where customers were prompted to enter an SMS code or password by their card issuing bank during checkout. Many customers had no idea what to do on this unexpected payment page and dropped out – 3DS1 was a conversion rate killer for marketers!
The 3D Secure 2.0 (3DS2) protocol is a digital payments process designed to improve customer security and fraud prevention while also - critically - remaining as frictionless as possible for the customer. It is the core function of 3DS2 protocol to combine both security and convenience into an efficient payment flow that enhances the shopping experience for customers and merchants.
To mitigate potential fraud while also maintaining an uninterrupted payment flow, 3DS2 uses multiple data points such as the customer’s device fingerprint to verify identity and evaluate risk during a transaction, and will only issue a challenge flow - the 3DS1-style prompt for the customer to further verify their identity - if the transaction is deemed high-risk.
3DS2 payments have been a hot topic over the past few years, as SCA regulations in the EU and UK took effect in 2021.
What is SCA?
SCA stands for Strong Customer Authentication, an active consumer protection regulation passed under the second Payment Services Directive (PSD2) by the European Union that covers the European Economic Area and the UK. It protects consumers by requiring multi-factor authentication when making payments with a bank card – both in-person and online. Per PDS2, the multi-factor authentication options are:
- Something they know (a password or PIN code)
- Something they own (a card, a mobile phone)
- Something they are (biometrics, e.g. fingerprint or iris scan)
Luckily for those in the region protected by SCA, 3DS2 payments satisfy SCA requirements. For transactions deemed risky in which 3DS2 cannot fully verify a shopper's identity, the challenge flow will be applied. In circumstances where the issuer deems a transaction highly-suspicious, the transaction will be rejected.
What are the Benefits of 3DS2 for Merchants?
While PDS2 and SCA are regulations to protect the consumer, 3DS2 was initially developed to protect merchants as digital payment options expand with new technologies.
A main benefit for merchants is reducing chargebacks. As receivers of card-not-present transactions, store owners are liable for reimbursement should the cardholder file a chargeback. 3DS2’s authentication process helps protect merchants because it passes liability to the cardholder’s issuing bank, thus making it harder for bad actors to claim fraud after they’ve made a purchase.
While chargebacks can happen for several legitimate reasons, you need to keep your total chargebacks well below 1% - fraud-reason chargebacks especially. By protecting your payments with 3DS2, you can reduce chargebacks by up to 40% and virtually eliminate fraud-related chargebacks. Many merchants learn the hard way that payment processors are quick to freeze, shut down, or fine accounts of stores that hit the dreaded 1%.
Similarly, since so much customer data is securely passed in 3DS2, you can expect to see card approval rates increase by 10% or more. This in turn helps reduce abandoned carts and raise conversion rates, contributing a significant chunk of revenue that otherwise could be lost to declined payment attempts.
3DS2 Payments on 29 Next
By default, all card payments on 29 Next can be processed as 3DS2, which means that merchants on 29 Next in the EEA and UK can rest assured that their sales will be compliant with SCA. In addition, because 3DS2 payments are standard on 29 Next, there are no extra fees applied for any 3DS2 payments.
Outside of SCA’s coverage, 3DS2 is not yet mandatory; however, many countries and jurisdictions have set near-term deadlines that will mandate all payments to be processed as 3DS2. If you are using 29 Next, future compliance will not be an issue and your operations will be unaffected once these regulations are in place. In the meantime, you can prepare by leveraging 29 Next’s 3DS2 Optimized, which avoids any 3DS challenge flows and maintains frictionless transactions.
Until 3DS2 is mandatory worldwide, merchants on 29 Next can secondarily leverage 3DS2 payments as a way to alleviate shoppers’ privacy concerns while also reducing their chargebacks and increasing their card approval rates.
Even if you are outside the UK and EEA, now is a perfect time to audit your payment processes and consider implementing 3DS2 payments.