Frictionless 3DS: Enhancing Approval Rates Without Compromising Security

In today’s hyper-competitive financial landscape, delivering seamless payment experiences is no longer a luxury. It is a strategic imperative. For product managers at neobanks and traditional issuers alike, balancing smooth user flows with strong security controls is a daily challenge. One of the most critical and often overlooked inflection points is the 3D Secure (3DS) step in card-not-present transactions.

But here’s the good news: modern 3DS does not have to be a conversion killer. Done right, it can actually improve both approval rates and security outcomes. Let’s explore how.

The 3DS Tradeoff That Isn’t

Historically, 3DS has been a double-edged sword. It was designed to reduce fraud by authenticating cardholders before authorization, but early implementations often introduced friction and abandonment. Clunky redirects, forgotten passwords, and overzealous step-ups led to user drop-offs and failed payments, especially on mobile.

As a result, many product teams came to view 3DS as a necessary evil: useful for risk mitigation, harmful for conversion. But that framing is now outdated.

Modern 3DS, especially EMV 3DS 2.x, supports rich data exchange, biometric authentication, and contextual risk scoring. When paired with real-time orchestration and intelligent step-up strategies, 3DS can:

• Improve issuer decisioning by passing more than 150 data points per transaction
• Reduce unnecessary challenges through risk-based authentication (RBA)
• Preserve user experience through in-app, biometric, and push-based flows

When treated as a strategic input instead of a static compliance checkbox, 3DS becomes a powerful tool for approval rate optimization.

Why Approval Rates Matter More Than Ever

In a world of embedded finance and nearly invisible payments, users expect smooth, instant transactions. Any friction at checkout, especially for returning users, leads to lost revenue and reduced trust.

For issuers, declining good transactions is more damaging than ever:

• False declines drive customer churn. Users often blame the bank rather than the merchant
• Lower approval rates translate to reduced card usage and less interchange revenue
• Big tech platforms like Apple Pay and Google Pay have set a new UX standard that banks must now match

To stay competitive, banks need to deliver invisible security. Optimized 3DS is a key part of that effort.

What “Frictionless” 3DS Looks Like in Practice

Here is what best-in-class 3DS implementation looks like today:

1. Smart Exemptions and Delegation
   Issuers can analyze transaction data and selectively bypass 3DS when risk is low and liability shift is not needed. For example, low-value trusted merchants may not require a challenge. In other cases, strong merchant-side authentication through device-bound passkeys or FIDO2 credentials can allow delegated authentication.
2. Real-Time Device Binding
   By binding passkeys or credentials to a device at the time of enrollment, issuers can enable silent authentication in future sessions. There is no need for OTPs or step-ups. Approvals are seamless, even when users switch to new devices, provided the binding is portable.
3. Biometric-First Challenges
   When step-ups are truly necessary, biometric or app-push flows offer a far better experience. SMS OTPs should be avoided whenever possible. They are slow, vulnerable to phishing and SIM swap attacks, and frustrating to users.
4. Rich Data Sharing with ACS
   The more context the Access Control Server (ACS) receives, the better the decisioning. Sharing device information, behavioral data, and merchant context enables more accurate and frictionless authentication decisions.

How Product Managers Can Lead the Change

Whether you are at a digital-native bank or modernizing a legacy issuer stack, you play a pivotal role in the evolution of your 3DS experience. Start here:

• Review your current challenge rates and approval rates. Identify patterns of unnecessary friction or false declines
• Ensure your ACS provider or in-house team supports RBA. Static challenge logic is no longer acceptable
• Invest in modern authentication infrastructure. This includes passkey support, app-based flows, and native SDKs
• Run experiments. Test different 3DS flows, challenge types, and fallback mechanisms across devices and user segments

Conclusion: Make 3DS a Growth Lever, Not a Cost Center

Authentication is often treated as a pure security problem. In reality, it is also a growth lever. Product managers who treat 3DS as part of the conversion experience — not just a compliance obligation — can increase approval rates, reduce fraud, and deliver smoother user journeys.

Frictionless does not mean insecure. With the right tools, intelligence, and infrastructure, you can have both.

Sources:

1. EMVCo. “EMV® 3-D Secure.” https://www.emvco.com/emv-technologies/3d-secure/
2. Visa. “Visa Consumer Authentication Service (VCAS).” https://usa.visa.com/run-your-business/accept-visa-payments/security/visa-consumer-authentication-service.html
3. Mastercard. “Smart Authentication Strategy.” https://www.mastercard.us/en-us/business/overview/safety-and-security/authentication.html
4. FIDO Alliance. “Understanding FIDO Authentication.” https://fidoalliance.org/overview/
5. Worldpay. “Lost in Transaction Report.” https://www.fisglobal.com/en/merchant-solutions-worldpay/resource-center/lost-in-transaction

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