3-D Secure Comes of Age - Industry Moves to Address Online Card Fraud
Merchants and Cardholders gain new levels of protection
The introduction of Chip & PIN, whilst reducing the overall level of card fraud, has resulted in a substantial increase in online card fraud. In 2006 this amounted to £213m out of a total of £423m. In 2001 Visa introduced their 3-D Secure technology under the name of Verified by Visa and licensed this technology to Mastercard for them to implement under the Mastercard Securecode brand. The initial uptake of this service aimed at preventing online card fraud was slow but as cardholder not present (CNP) fraud has increased significantly the schemes, acquirers and issuing banks have moved to promote the adoption of 3-D Secure for merchants with an online presence.
The schemes now issue more information to merchants about 3-D Secure and how it can be best implemented. Issuing banks are now either actively promoting or mandating that cardholders register for 3-D Secure and finally the acquirers are pushing their merchants towards these schemes either by incentivising them with lower merchant service charges or by levying significant fees for merchants’ online transactions where 3-D Secure is not used.
3-D Secure is at a tipping point
Initially market adoption was slow but there has been a significant uplift in the usage of Verified by Visa and Mastercard Securecode recently. In October 2007 Visa announced that 30% of merchants had implemented 3-D Secure and the increase in consumer adoption is reflected in the statistics that we see from our own Managed Service where in the last 7 months the volume of authenticated transactions has increased from 35% to 55%. If the adoption rate increases as it is currently will see 60% of online transactions being authenticated by March 2008. Soon it will be the norm for cardholders to enter their 3-D Secure password to authenticate themselves and those merchants that have not implemented 3-D Secure will potentially run the risk of customers dropping out of the checkout process due to the perceived lack of security.
What’s in it for a merchant though?
With the pressure to implement 3-D Secure and the need to comply with ever increasing regulation it is easy to lose sight of the benefits that implementing an initiative such as 3-D Secure can bring to a merchant. At The Logic Group we see these falling into 3 main areas:
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A more effective interaction with the customer
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Increased Security
Consumers have never been more aware of the need to secure their personal details and expect the organisations whose products they purchase to secure those details when they are used during a purchase or other financial transaction. By promoting secure transactions a Merchant can capitalise on this demand and ensure that a customer is more likely to return in the future knowing that their payment details are safe in that merchant’s
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Research
from Visa also shows that the average Verified by Visa transaction in Europe is worth €138 compared to the average online transaction amount of €73 or less.
A More Effective Interaction with the Customer
By implementing 3-D Secure the merchant is no longer liable for chargebacks from fraud claims from cardholders. Visa estimate that merchants will see up to an 80% reduction in disputed transactions of this type, which represents a massive saving in the time taken to handle these disputed transactions and will lower the effort required to support the interaction between the customer and the merchant.
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Increased customer confidence and spend
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Fewer chargebacks means less time and effort on disputed transactions
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Direct savings through shifted liability for chargebacks, lower MSCs and avoiding penalty fees
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Increased Profitability
As well as reduced chargebacks acquirers are also discussing the option of reduced merchant service charge (MSC) levels for online transactions that go through 3-D Secure. Internet articles are openly discussing reductions of 5 basis points whilst we have seen merchants gain much higher reductions for their 3-D Secure transactions. These rates apply whether the cardholder is enrolled or not. It is also the case that we are seeing Acquirers discuss heavy additional fees or fines for Merchants who do not implement 3-D Secure. These fines significantly outweigh the cost of implementing a 3-D Secure solution.
About the Logic Group
The Logic Group offer both a licensed software application and a Managed Service that allow Merchants to pass their online transactions through both Verified by Visa and Mastercard Securecode.
The Logic Group provide secure and compliant environments, leading to enhanced confidence for your customers and reduced business risk. Our Consulting Services team are available to assist Merchants through the process of implementation, testing and accreditation of their solution.
For more information on The Logic Group’s offerings please see www.the-logic-group.com, alternatively email us at marketing@the-logic-group.com or contact us on +44 (0)1252 776700.
