Can You Prevent Chargebacks With 3-D Secure?

October 28, 2021/ Jarrod Wright /

When it comes to chargeback prevention, there are various tools available in a merchant’s arsenal. One of these tools is called 3-D Secure (3DS), and it works similarly to a PIN code for card-not-present transactions.

3DS technology automatically brings any cardholder attempting to make a purchase to a page which asks them to enter an additional code. If the cardholder is not who they claim to be, they will be unable to do so. The point of 3DS is to prevent criminal fraudsters from making any unauthorized transactions.

3-D Secure can help you prevent criminal fraud chargebacks. It is a helpful way to prevent fraudsters from using stolen cards. Unfortunately it does still have limitations, and cannot prevent all types of fraud.

Can 3-D Secure Prevent Chargebacks or Chargeback Abuse?

3DS is effective at targeting real fraudsters, but it isn’t capable of making a transaction “chargeback-proof.” There are two main reasons for this:

1. The 3DS adoption rate is still low: 3-D Secure is an “opt-in” program, meaning that consumers must be enrolled in the 3DS platform corresponding to the card brand in question. Many merchants are embracing the use of 3DS for the first time, and updates are continually being made to address merchant pain points in the process. Overall, the rollout has been slow, and the majority of transactions still do not involve 3-D Secure verification.
2. Chargeback sources: At the end of the day, 3-D Secure only has the ability to prevent chargebacks that are filed underneath the “fraud” reason code. This means that dozens of unrelated chargebacks are filed which slip past the net. This includes for reasons such as shipped goods not matching what was promised, misrepresented items, and merchandise never being shipped or received.

The bottom line is that merchants could receive a chargeback based on numerous claims, which 3DS would have no ability to recognize or prevent. In addition, chargeback abuse, or friendly fraud, is another issue that 3-D Secure has no way of effectively managing.

Consider this example: acardholder purchases an item from an online store. 3DS positively identifies them as being who they claim to be, and the transaction is authorized. Then, weeks later after the transaction has already been processed and the item shipped out, the customer files a chargeback and claims they never received their purchase.

In the scenario above, 3DS would be useless in preventing the chargeback because the cardholder’s claim had nothing to do with authorization in the first place. It was friendly fraud, which is a growing trend among consumers. By 2023, we could see six out of every ten chargebacks being filed as friendly fraud. This would leave many transactions unprotected by 3DS.

Is 3-D Secure Worth It?

3-D Secure technology offers effective protection against criminal fraud chargebacks, but it should not be considered a foolproof plan to protect every single transaction. Instead, it should be seen as one cog in the greater machine of comprehensive fraud prevention strategy that every merchant must adopt.

3DS can be used to prevent chargebacks that fall under a fraud reason code, as long as the customer is enrolled in the program. If they don’t use 3DS, or submit a chargeback claim tied to a non-fraud reason code, 3DS cannot do its job.

The key to effectively preventing all types of chargebacks is to first identify chargebacks by their source, and filter out the true criminal threats. Once merchants have a better understanding of where their chargebacks are coming from, they can deploy the right tools to meet each threat and tackle the issue head-on.

Last Update: October 28, 2021