Transacting online was not very popular among cardholders in India because of the constant fear about the safety of such transactions. Online payments were mostly done using credit cards as banks were wary of opening up debit cards due to obvious security reasons and lack of awareness around chargeback procedures and efficiencies.

The scenario changed after RBI mandated 2-factor authentication in India and the cards industry adopted the 3-D Secure methodology to ensure compliance. 3-D secure added an extra layer of security to credit and debit card transactions. It is an XML-based protocol and involves an additional validation step for online payments wherein the cardholder’s identity is authenticated by his / her card-issuing bank. The technology was first adopted by Visa under the name Verified by Visa and later by
MasterCard under the name SecureCode.

3-D Secure model of authentication is based on the 3-Domain model and hence the name.

It involves three different parties during the process of payment:
  • Issuer domain or the bank that has issued the card being used
  • Acquirer domain or the merchant / acquirer to which money is being paid
  • Interoperability domain which is the network being used like Visa / MasterCard
A transaction being carried out through 3-D Secure technology redirects the payment process to the website of the bank that has issued the card to authenticate the transaction. 3-D Secure ask shoppers to enter either a static or dynamic password to help confirm the identity of the cardholder during the time of purchase. For first time shoppers, a registration process may be available at the time of transaction itself. 3-D Secure is an established means of reducing all types of online fraud. It also helps merchants reduce the online costs of managing a payment service.

Major benefits of 3D Secure

1. Opening up of debit cards for online payments

Earlier, debit cards were not allowed for financial transactions online as the banks were apprehensive about security of such transactions. With the introduction of 3-D Secure, banks’ confidence has increased considerably and they have opened up debit cards for online payments as well.

2. Increased confidence in online shoppers

Once the cardholders realize how easy and secure it is to pay online, the convenience of making online payments ensures that they continue to make payments online itself.

3. Proven technology to reduce fraud

3-D Secure is known to significantly reduce online frauds, especially when it is combined with other fraud prevention tools such as Cardholder Verification Value, Address Verification Services, etc.

4. Liability Shift

The major benefit to merchants that are making use of 3-D Secure technology is the availability of a liability shift for a transaction which has been carried out and verified successfully. This offers a shield to merchants by the card issuers against all sorts of chargebacks as the liability is assumed by Issuers. This is an important benefit that can result in a reduction in chargebacks and disagreements for certain types of fraud. Merchants can benefit from this type of protection even when the issuer or the cardholder is not taking part.



With all these benefits in India, 3-D Secure has fuelled a phenomenal growth in online card transactions in India. However, all good things come at a price and same is the case with 3-D Secure.

While it has opened up the market really well, there are some challenges that need to be addressed:

1. The payment experience for routine customers is sub-optimal. If the same user visits the same website from his personal device and makes payment using the same card, he or she is still made to go through the 3-D Secure process. While this ensures complete security of the transaction, the payment experience can be optimized to a great extent.

2. Re-direction of browsers to the Issuer domain causes many transactions to drop due to low Internet speeds in India. This impacts the success rate and is one of the cause of drop in business for ecommerce companies.

3. While using the card on an Interactive Voice Response (IVR) payment system, the cardholder is required to punch in the OTP which either has to be pre-generated or has to be read in the SMS which again is an inconvenience to the cardholders.

4. Lastly, the transaction time goes up drastically due to this and chances of failures are also high in case the OTP SMS is not delivered or the cardholder forgets his or het static password.

To sum it up, 2-factor authentication or 3-D Secure is one of the very big reasons for ecommerce and online payments to takeoff in India. There are certain challenges that need to be taken care of in order to improve the customer experience and also ensure minimum failure rates.