​By Rune Sørensen, Product Manager, Card Processing, Nets.

In 2018, banks and retailers are dealing with a new breed of customer: one that expects a fast, seamless online payment experience. When it comes to e-commerce, however, user experience isn't the only consideration. As the number of Card-Not-Present (CNP) purchases continue to increase, so do the security risks.

How can banks and merchants continue to offer customers security and transparency in payments without impacting their overall online shopping experience? How can this be done while fulfilling the Strong Customer Authentication (SCA) requirements mandated by the revised Payment Services Directive (PSD2), and making use of the exemptions to offer frictionless authentication?

Readers will already be familiar with 3-D Secure, the XML-based protocol that adds an extra layer of security to online CNP transactions and enables consumers to authenticate themselves. The facility helps prevent unauthorised transactions and protects merchants from CNP fraud. Unfortunately, however, it also detracts from the customer's payment experience by increasing the number of steps needed to complete the process.

The addition of risk-based authentication (RBA) provides a countermeasure. In many ways, it's a magic ingredient: an elusive technology that further protects consumers online while simplifying the payment experience at the same time. 

RBA is a dynamic, parameter-driven system that measures the risk level of a transaction and uses it to determine how strong the security challenge should be. Parameters include transaction amount, number of transactions within a specified time-frame, the cardholder's browser fingerprint, and the country in which the payment originates. Issuers can decide their individual risk profile and let transactions that they deem safe be authorised without further authentication. This means that with RBA, the customer is only required to enter their 3-D Secure password for higher-risk transactions, instead of every time they initiate a payment online.

If, for example, a consumer initiated a €10 transaction from a device they had frequently authorised payments with in the past, such as their own laptop, in the country where that card is registered, this could be classified as a low-risk transaction, so additional password entry is not required. The payment experience is improved via a smoother and faster process for the consumer and, crucially, security has not been compromised.

RBA also benefits merchants and banks. For both parties, it reduces their liability for unauthorised CNP transactions, minimising any pay-out in the event of fraud. In addition, it has been found to reduce occurrences of 'non-completed' transactions, which boosts revenues.

In a Nets 3-D Secure with RBA pilot, at major Nordic bank DNB, the share of non-completed transactions decreased significantly when risk-based authentication was used. For one merchant involved in the trial, not completed transactions decreased by 13.8%.

As consumers demand ever more frictionless payment methods when shopping online, RBA will quickly become a necessity. Dynamic, parameter-driven systems will give issuers the power to determine the risk levels they are comfortable with, while consumers experience fast, seamless payments and merchants and banks increase their revenues. Everybody wins – other than fraudsters, of course.