Optimizing 3DS Costs and Risks

A PRACTICAL GUIDE TO RISK-BASED 3DS/3DS2 TO BALANCE FRAUD LIABILITY, CUSTOMER EXPERIENCE, OPERATIONAL COSTS, AND REVENUE.

3-D Secure (3DS) is a layer of defense for card-not-present (CNP) transactions for merchants. With the rollout of 3-D Secure 2 (3DS2), networks now emphasize a smoother customer experience while maintaining strong fraud controls. 3DS/3DS2 shifts fraud liability away from merchants, but it comes at a cost: transaction fees rise, checkout friction increases, and customer abandonment becomes a real risk.

For payment processors and merchants, the challenge is how to balance the benefits of 3DS/3DS2 to maximize protection without hurting revenue and user experience.

The Challenge

• Direct costs: Networks and acquirers charge fees for every 3DS/3DS2 transaction.

• Indirect costs: Although 3DS2 improves user experience compared to 3DS, the extra authentication steps often lead to higher cart abandonment and lost revenue.

Merchants face a trade-off: Apply 3DS broadly and you protect against fraud but lose sales; apply it narrowly and you risk chargeback liability.

3DS tradeoff -- higher cost / abandonment vs higher risk

In addition, 3DS does not help with the newly instituted VAMP ratio.

Current Approaches & Their Limitations

• Enforcement For Every Transaction

  • Guarantees 3DS compliance and liability protection. But penalizes low-risk transactions with unnecessary cost and friction.

• Rule-Based Selective Enforcement

  • Configure static rules (e.g., apply 3DS to transactions above $500 or for cross-border payments). Often over-inclusive or under-inclusive, and lacks adaptability to new fraud tactics / situations.

  • Threshold adjustments are usually reactive, i.e. the 3DS thresholds are adjusted after significant fraud or chargeback incidents. This often creates cycles of over-correction, either raising costs or increasing risk.

Idenza 3DS/3DS2 Optimization

• Context-aware decisioning: Idenza agents analyze device, behavior, transaction history, and counterparties in real time.

• Identity Graph intelligence: Connects dots across customers, devices, and transaction data to detect anomalies.

• Risk-based Dynamic 3DS invocation: 3DS is applied only when risk score exceeds threshold.

Risk scoring for 3DS optimization

Business Impact

• Lower Costs: Reduce unnecessary 3DS calls by focusing on truly risky transactions. Lower network and processing fees.

• Higher Conversion: Preserve frictionless checkouts for trusted transactions.

• Reduced Risk: Apply 3DS where it matters, prevent chargebacks and meet liability-shift requirements.

3DS2 is here to stay — but the way you use it can define your competitive edge. With Idenza, you don’t have to choose between safety and conversion. Intelligent workflows ensure that 3DS is applied with precision, keeping costs down, customers happy, and issuers satisfied.

Contact us today to explore how Idenza can help you optimize your 3DS utilization to achieve the right balance between protection, liability shift and revenues.