Protecting Your Transactions

Every merchant should use multiple fraud and risk management protection methods to protect their online business.  There is no one silver bullet and the best practice for Card Not Present fraud is a multi-layered approach.  Some fraud tools that should be implemented to mitigate your risk include 3-D Secure, Address Verification Services (AVS) and Card Verification Value (CVV) — also known as Card Verification Code (CVC).  Used in conjunction with one another as part of your fraud risk mitigation strategy, these tools can help reduce chargebacks and fraudulent activity, and increase sales opportunities.

Chances are you are already employing AVS and CVC to identify a customer, which is usually done as part of a merchant’s request for payment authorization from the cardholders’ bank.  If not, you should certainly implement them, and we discuss how they can help mitigate fraudulent activity in another blog. Today, however, we are going examine 3-D Secure to understand how it works and the value it will bring to your business.

3-D Secure Technology is an XML based protocol designed to provide a layer of security for debit and credit card transactions online.  This system was originally developed by Arcot systems and adopted and employed by Visa as “Verified by Visa”, MasterCard as “MasterCard SecureCode” and AMEX as “AMEX Safekey”.

This layer of security adds an authentication step when trying to process online payments.  The XML code being used has three domains which must be checked in order for the payment to clear; this is where the name 3-D originates from.  The first domain is the Acquirer Domain – this one is the bank and merchant who are receiving the money, second is the issuer domain – this is for whichever bank issued the card and lastly is the interoperability domain – this involves the infrastructure for the card scheme.

This online merchant service is extremely valuable to both domestic and international merchants and their online sales income.  Branching out into the international online market is very lucrative as for the past several years worldwide ecommerce has seen more than 10% growth per year.

3D Secure is available in Europe, Asia Pacific, Africa, North America, Central America and the Latin American Caribbean cardholder regions, and is a must for fraud protection vastly improving payment services for global merchants.

3D Secure enabled transactions allow for chargeback liability shift on certain fraud related chargebacks, which means the issuing bank of the card is liable for the transaction amount as opposed to the merchant and acquiring bank. This is valuable to merchants because it reduces the frequency and costs of any chargebacks and it improves trustworthiness of a site.

When merchants implement 3DS on their site:

  • During an ecommerce payment transaction all parties are able to transmit confidential and valid payment data
  • A customer’s real identity is effectively verified through an electronic, secure and non-face-to-face authentication process
  • Merchants are able to verify the online customer is the true owner of a card account

Key to 3DSecure is that when it is used during CNP transactions, the fraud liability shifts from the merchant to the issuing bank—even if the cardholder is not enrolled in the program. (There are some exceptions to this, for example, it is not applicable to corporate cards.)

Also, not only are you mitigating your fraud risk with the use of 3DS, but you could qualify for lower discount fees due to lower interchange fees.

Protect your online sales today with chargeback liability shift!


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