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3D Secure is a boon to online retailers who benefit from the shift in chargeback liability to card issuers. Participation in 3D Secure is almost a no-brainer from the merchant perspective in that sense. What about card issuers though? According to the Nilson report, issuers absorb over 66% of the more than $5 billion a year in credit card fraud. Is 3D Secure the obvious choice for them? The answer is “yes” – if they adopt the right 3D Secure solution. Issuers can dramatically lower their exposure by selecting a 3D Secure solution that impacts five factors that directly contribute to the total cost of fraud each month. Operational costs associated with investigating cases of fraud identified in a 3D Secure environment. The false positive ratio of any anti-fraud solution can have a major impact on operational costs. For example, a one-to-one false ratio will yield five confirmed cases of fraud for every ten investigated while a five-to-one ratio will yield only two of ten. The operational costs for investigating the ten cases will be the same in both cases, but you will have captured more than twice the number of fraudulent transactions with a one-to-one false positive ratio. Recommendation: Ensure that your 3D Secure solution (in fact any anti-fraud solution) has a low false positive ratio. Revenue losses from turnover, or authentication failures by genuine customers. The challenge rate, or the rate at which cardholders are asked to authenticate themselves, can impact overall fraud costs. There will be instances where a legitimate cardholder fails authentication and cannot (or will not) complete the transaction, thus denying the merchant the sale and by extension the issuer the interchange. Recommendation: Ensure that your 3D Secure solution balances a high fraud detection rate with a robust risk scoring system that minimizes challenges. Operational costs associated with failed authentication challenges that drive a phone call to your call center. The higher the number of failed authentication challenges there are, the greater the number of phone calls that will make their way into your call center. Each of those calls will incur a cost. Recommendation: Reduce the number of failed authentication challenges by ensuring your 3D Secure solution minimizes challenges through robust, risk-based assessment. Revenue losses from “bad declines,” or transactions from genuine cardholders categorized as highest risk and so declined. In addition to lost revenue, declining transactions from genuine cardholders also impacts cardholder loyalty and satisfaction. Bad declines can be a function of both the false positive ratio and challenge rate – higher false positive ratios and challenge rates will increase the chances that a genuine cardholder will be included among suspected cases of fraud and subsequently declined. Recommendation: Reduce the number of bad declines by using a risk-based 3D Secure solution with a low false positive ratio. Residual loss, or fraudulent transactions that aren’t detected. Unfortunately, no solution will detect every instance of fraud and some bad transactions will go undetected. Although it may seem obvious, the higher the fraud detection rate the better. Even a few points can make a difference. For example, residual loss on $100,000 fraud risk is only $5,000 with a 95% detection rate, doubles to $10,000 with a 90% detection rate and soars to $20,000 with an 80% rate. Recommendation: Minimize residual loss by implementing a 3D Secure solution with a high fraud detection rate. Issuers can dramatically lower their fraud exposure by implementing a risk-based 3D Secure solution with low false-positive ratios and high fraud detection rates. A balanced, risk-based solution will allow you to minimize challenges while narrowing the pool of potentially fraudulent transactions to reduce operational costs, turnover, bad declines and residual losses. See the impact Adaptive Authentication for eCommerce, RSA’s risk-based 3D Secure solution, can have in your environment with the fraud prevention calculator. The post Reducing the Risk of Fraud in the 3D Secure Ecosystem – The Issuer Perspective appeared first on Speaking of Security - The RSA Blog and Podcast. |
