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3-D Secure is a protocol designed by Visa and licensed by MasterCard to be an additional protection against unauthorized use of credit cards when shopping online. This service is offered to customers under the name Verified by Visa or MasterCard Secure Code.

This authorization is based on a three domain model (that is why it is called 3-D Secure). These domains are:

  • Acquirer Domain – the merchant and the acquiring bank.
  • Issuer Domain – the bank who issued the card.
  • Interoperability Domain – the infrastructure to support the 3-D Secure protocol.

To take advantage of 3-D Secure service, a card holder should complete the one-time registration process with their issuing banks. As for merchants, who want 3-D Secure program on their website, they should purchase MPI (Merchant Plug-in Integration) to get access to Visa and MasterCard verification directory. Every transaction is verified and experts agree that it is probably the smartest way to do business as it gives the possibility to decrease chargeback ratio.

How does 3-D Secure protocol work?

On participating sites, having completed the checkout process, the customer will be redirected from the online store to the website of the card issuing bank to get the authorization for the transaction. Secure code is quickly confirmed by the financial institution and then the purchase is completed. Merchant will not know your code as it is an alternative of your PIN or personal password. So, even if fraudster knows your card number, the purchase will not be completed without inserting this secure code.

Most merchants display the Verified by Visa and MasterCard Secure Code logo on their site. However, even if they don’t put the logos, the merchant can use this service and the customers will be asked to provide the unique code for each transaction.

What are advantages of 3-D Secure?

3-D Secure helps to reduce number of disputes and can offer an extra layer of protection for both cardholder and merchant.
Typically, when a transaction is disputed, it’s the merchant who is responsible for any damage. 3-D Secure gives a zero liability to merchant and passes all the responsibility to the issuing bank.

Also this function gives merchant a chargeback protection and can prevent “friendly fraud,” which occurs when a customer makes an online purchase with his own credit card, but later claims the transaction was not authorized and requests chargeback, knowing the bank will side with the customer.

Another benefit for your business is the increase of sales, as fear of their credit cards being compromised refrain many consumers from shopping online. So, 3-D Secure function enhances consumers’ confidence and spending.

What are disadvantages of 3-D Secure?

3-D Secure offers an extra layer of protection but it is also an extra step in a checkout process that complexes the process of payment. Also, cardholders frequently forget passwords and when faced with an extra step in the checkout process – many will just give up and look for another merchants who don’t use it.

The system is also not convenient for those who often change mobile numbers due to travelling. Most banks require a visit to their office to change the mobile number on the card holder profile.

Despite 3-D Secure is an extra layer of protection, merchant should know that it does not totally remove fraud or chargebacks, so implementation of antifraud systems and security measures are still unavoidable.

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