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3DS2 – the latest innovation in the drive to authenticate online transactions and keep them secure – has been the talk of the payments industry for several years now. It has promised a lot, significantly upgrading the old, often poorly received 3DS1, adding slicker mobile authentication experiences, and collecting more data that issuers can use to make better authorization decisions. It has now been a few months since the first 3DS2 transactions started to flow – so what are we seeing?
Upfront, it is important to remember that it is still early. Volumes on 3DS2 are still relatively low compared to overall 3DS volume, representing just 4-5 percent of overall authenticated transactions (as of June 2020). This is growing quickly and is up from just 1 percent earlier this year, but it has a long way to go. Increasing the percentage of 3DS2 in the market will depend on several things:
- Issuers must enable all of their BINs for 3DS2. 3DS2 BIN coverage is now approaching 80 percent in some key markets. Visa mandated that all of its European issuers were enabled for 3DS2.1 in March 2020, and it is pushing issuers hard. A similar 3DS2.2 Visa mandate will follow in September 2020, helping keep up the pace of development.
- Acquirers and gateways must upgrade their Merchant Plug Ins (MPIs) to support 3DS2. Worldpay from FIS and other MPI providers are now up and live on 3DS2 – Worldpay is even on 3DS2.2. This is not universal yet, with some smaller providers lagging behind and complex transactions flows taking a little more time, but great progress has been made.
- Merchants must upgrade their MPI integrations to 3DS2. /In the last 6-12 months, many merchants have begun their 3DS2 journey – choosing an MPI provider and kicking off their development work. Hundreds of merchants are now live, however, thousands of others – particularly those who operate in Europe and will be subject to impending Strong Customer Authentication (SCA) deadlines – still have work to do.
Of course, in recent months COVID-19 and the resulting recession have put significant pressure on resources, which is making merchant development work in 2020 a tougher ask. As a result, we have seen the pushing out of some deadlines, such as the recent announcement by the FCA extending the UK SCA enforcement deadline to September 14, 2021. Regardless of any delays, merchants still need to make progress on authentication in 2020 – the SCA deadline for the rest of Europe remains December 31, 2020. Other significant milestones over the next year include:
- Scheme mandates: Mastercard has stated that every merchant taking payments in Europe must evidence at least one end-to-end 3DS2 transaction by July 1, 2020, or risk potential fines. While enforcement of this mandate is likely to be pushed to January 2021, it is important that merchants act quickly.
- Scheme fees: Mastercard has announced that its scheme fees for authentication will increase in early 2021 – but this will only apply to 3DS1. This is a big incentive to move to 3DS2.
- Soft declines: A new decline type has been introduced, designed to help manage various SCA flows. Its primary use will be after SCA enforcement begins, to return a transaction back to a merchant that has either been sent without an authentication or has been sent with an exemption request that the issuer is not willing to honor.
However, several European markets, including France, Belgium and the Netherlands, are not waiting for SCA to be enforced to start using soft declines. They are asking their issuers to start soft declining unauthenticated higher risk or higher ATV transactions from September 2020. Merchants need to be able to receive and interpret soft decline responses by then, and trigger authentication accordingly – or risk a spike in declines.
The UK has recently announced a similar approach with the introduction of soft declines by issuers from June 1, 2021, three months before SCA enforcement starts on September 14, 2021.
The final piece that the industry is working hard on is building the evidence base to show the value that 3DS2 is bringing. With volumes being relatively low, robust benchmarks have been difficult to obtain. Schemes are working closely with issuers, acquirers and selected merchants to launch more comprehensive test programs. The 3DS2 rollout has not been entirely seamless, as different systems across hundreds of providers in the payment ecosystem have turned on this new technology for the first time. However, this is improving, and the data is encouraging.
One of the main metrics we have been watching is the authorization rate for 3DS2 transactions. In the early weeks of the rollout, 3DS2 authorization was running behind 3DS1, as issuers got to grips with the new technology. Based on our rollout of 3DS Flex with merchants, we now see 3DS2 authorization rates catching up to the very high ~95 percent authorization rate that 3DS1 has historically enjoyed.
The story on authorization rates has not been uniform. There have been challenges with some issuers in France and Italy, and performance between schemes has varied. The good news is that Worldpay has detailed monitoring in place, and our rules engine automatically routes authenticated transactions away from 3DS2 (and down to 3DS1) where we know there are issues. This enables merchants to have the highest authentication and authorization success, based on the readiness of each issuer.
Finally, the other critical metric we are watching is the authentication abandonment rate. Again, this has not been uniform, but we are seeing some real improvements in markets like Spain and Italy, which historically had very high abandonment when 3DS1 was enabled. The mandate for issuers to support Risk-Based Authentication (RBA), a common mechanism used by issuers in the UK, has resulted in abandonment falling by more than half in some countries – a very encouraging sign.
How Worldpay can help
Worldpay has been leading the way on 3DS2. We have released 3DS Flex , a new authentication platform that lets merchants leverage all of the benefits that 3DS2 brings – optimizing shopper experience, driving sales uplift and reducing fraud. Worldpay is now live with 3DS2.2, bringing an even richer set of features to our merchants, and 3DS Flex also helps you to navigate the complexities of SCA and other scheme and regional mandates.
Get in touch with your Worldpay account team to find out more about 3DS Flex and our other SCA solutions.