Three common misunderstandings about 3DS could be causing merchants in APAC to shun the system or implement it effectively

When I started focusing on digital commerce within the Asia Pacific (APAC) region specifically, in all its diversity and sophistication, one trend stood out to me: the dominance of 3-D Secure (3DS) in protecting checkouts.

Years later, this is still true.

Although 3DS is not mandated or encouraged by regulation (as is the PSD2 in Europe), in APAC, merchants freely choose this option across industries and countries as a means of reducing the risk of fraud and chargebacks.

3DS benefits and myths

If you want simple, reliable protection from digital commerce fraud, 3DS has a lot to offer:

    • Liability shift: When the issuing bank approves a transaction via 3DS, the liability shifts to the bank, meaning if a chargeback results, the merchant is not responsible for covering it.
    • Burden sharing: Merchants feel they are partnering with the bank to prevent fraud, not having to shoulder the considerable burden of fraud prevention on their own.
    • Consumers familiarity: In APAC (unlike in the US market), consumers are familiar with and expect 3DS, so even when a transaction is not frictionless, it is not a shock — although friction does reduce conversion.
Dany Naigeboren, Head of Analytics (Asia Pacific), Forter

Despite these strengths and the merchants’ familiarity with the system, three vital misunderstandings about 3DS are commonly observed:

    • Myth #1: All transactions should go to 3DS
      If you are sending transactions to 3DS, why not send them all? Then you get an unlimited liability shifting, and your payments diagram looks nice and simple. The reality, unfortunately, is that this deceptively “simple” looking approach actually creates more complexity, and not in a good way.

      The truth is that all banks view and use 3DS differently. Some are positive about seeing it used for every transaction, while others see this as a suspicious sign that leads them to reduce a merchant’s approval rate. Still, others give the best results to merchants who use 3DS judiciously for transactions of specific types — although which type will vary from bank to bank.

      Given that many APAC merchants work cross-border, the complexity of this picture increases considerably. When you have banks from the diverse international scene in play, it is essential to know how to treat transactions sensitively and in accordance with different banks’ and consumers’ preferences. Doing so can result in an average conversion uplift of 5–7%: revenue that is otherwise simply left on the table.

    • Myth #2: All 3DS transactions are the same
      3DS is a standard protocol, making it seem like every use of 3DS must be equally standardized. However, there are ways merchants can use 3DS to increase banks’ trust in their transactions.

      Banks have much less data about any given transaction than the merchant does. When it comes to transactions, banks simply get the information the customer enters, and the merchant sends it. That has consequences: about 20% of bank declines are due to suspected fraud — but about 40% of those are, in reality, legitimate customers!

      Vital clues to a customer’s identity, such as behavioral analysis; device information and fingerprinting; browser analysis; past 3DS history; and so on, are available to the merchant and not to the bank. Merchants can work with providers that can help ensure that the far higher level of trust in a consumer available to them — and not to the bank — is reliably passed on to the bank as well. This can significantly impact authentication and authorization approval rates, reducing costly delays and administration.

    • Myth #3: 3DS has to come with the risk of reduced sales
      Some mistakenly believe the benefits of 3DS must be paid for with reduced approvals or conversions. It is a trade-off that may be worth making — but it is not necessary at all.

      It is true that some customers dislike or struggle with 3DS, just as some banks dislike the liability shift it comes with. Some customers find the process confusing when friction is involved, as it sometimes happens even with 3DS2. The right step for a merchant is to determine through analysis which customers find 3DS a barrier to successful purchase — and ensure that for those customers specifically, it is avoided.

      So, not only does 3DS not have to reduce sales; if it is deployed in conjunction with a smart system that can create a frictionless experience when appropriate, and adjust based on the customer’s preferences, then 3DS can actively increase sales, and at the same time improve customer experience and the likelihood of future customer loyalty.

Adopting 3DS effectively

In contrast to regions where 3DS is viewed with suspicion, or in places where merchants are still grappling with how to make it effective, APAC merchants are in a solid position to leverage the power of 3DS.

With 3DS a well-accepted and expected part of the payments process, APAC merchants are set to use 3DS to shift liability and increase their sales, as long as they do so through the mechanism of a smart system that tailors the use of 3DS to the right situation.

While 3DS by itself can lead to significant drop-off from customers and rejection of bank authorization, deploying it through a smart system that adjusts for the nuances of every transaction (bank, geography, customer preferences, customer persona, etc.) — can be a viable asset.