3DS is a security protocol designed to make online payments safer and reduce fraud. It stands for 3-domain secure, involving three entities: the acquiring bank, the issuing bank, and the payment infrastructure. This protocol was introduced in 2001 when online shopping was primarily done through computers.

Since then, technology has advanced, fueling e-commerce growth, digitalization, and the emergence of new payment methods and regulations. Unfortunately, fraudsters have also become more sophisticated. As a result, there was a pressing need for a new, more advanced security standard.

Developed in 2015, 3DS2 has become essential for Strong Customer Authentication under PSD2. In this article, Corefy outlines the main benefits of this new standard. But first, let's explore what 3DS2 is all about.

What is 3DS2?

3DS2 is the updated version of the security protocol developed by EMVCo (including American Express, Discover, JCB, Mastercard, UnionPay, and Visa). It addresses the weaknesses of the first version, enhancing the appeal of the technology for market participants, improving the quality of transaction legitimacy assessments, and refining authentication needs.

Top 10 Benefits of 3DS2 Implementation

1. Enhanced Security

   The new standard increases security by replacing static passwords with strong customer authentication methods, such as token-based or biometric verification.

2. Smoother User Experience

   One of 3DS2's standout features is frictionless flow, enabling customers to authenticate without interruption. Risk-based authentication evaluates the transaction's risk, involving the customer only when necessary, ensuring a seamless checkout.

3. Higher Approval Rates

   To facilitate risk-based authentication, merchants provide extensive transaction data. 3DS2 expands the data collection by tenfold, enabling issuers to assess risk more accurately. Mastercard anticipates about 95% of transactions will be approved instantly.

4. Increased Conversions

   These improvements help lower cart abandonment rates. Visa estimates a 66% reduction, driven by quicker transactions, fewer redirects, and minimized password issues.

5. Adaptability

   3DS2 transcends the desktop limitations of 3DS1 by supporting in-app authentication and ensuring mobile compatibility. It also allows challenge screens to match the look of a merchant's site or app.

6. Liability Shift

   Merchants gain extra protection through the liability shift. With 3DS2, responsibility for fraudulent chargebacks transfers from merchants to issuers.

7. Lower Fees

   Mastercard plans to double Auth Fees for non-3DS2 transactions from October 2020, with Visa likely to follow. This is a strong incentive to make the switch.

8. Biometric Authentication

   3DS2 replaces static passwords with one-time passcodes and biometric options. Customers can authenticate via fingerprint, face, or voice recognition if supported by their device.

9. White Lists

   Issuers can create White lists of trusted merchants, automatically approving their exemption requests for flagged transactions. This mechanism encourages greater responsibility and accountability.

10. Compliance

    3DS2 is required by PSD2 SCA. Businesses under this directive must implement it. Additionally, PSD2 serves as a model for global payment regulations, so compliance with it likely eases global expansion.

3DS2 and PayStar's Ecosystem

At PayStar, we aim to help our clients transition to 3DS2 and benefit from its advantages as quickly as possible. Our Integrations team is actively adapting our PSP connectors to 3DS2, ensuring a smooth transition. The more providers that support 3DS2 for global payments, the more connectors we'll adapt to this new standard.