Verified by Visa

Credit card fraudsters aren’t in it for the challenge. They’re looking for the quickest, easiest way to turn stolen card numbers into a profit, and when they encounter effective fraud protection, they’ll just move on to another target instead of trying to find their way around it.

Tools like Verified by Visa, which are provided by the card networks to verify cardholder identities at the moment of transaction, can stop fraudsters cold—but they aren’t always conducive to the ideal customer experience. What is Verified by Visa, and how can merchants use it to their best advantage?

The rates of credit card fraud continue to rise, increasing by more than 44% in 2020. In a consumer landscape that’s increasingly shifting toward e-commerce, that means that card-not-present fraud will remain one of the biggest difficulties for merchants and a major source of chargebacks.

Card networks require their acquiring banks to monitor merchants’ fraud and chargeback levels and can penalize them for excessive rates, or even terminate their merchant accounts in extreme cases.

That’s why it’s so important for merchants to understand where their fraud and chargebacks are coming from and address the problem with the right combination of policies, tactics, and tools.

True fraud chargebacks can be especially hard to deal with because they can’t be fought with chargeback representment—you have to fight them by detecting and blocking them preemptively.

Verified by Visa is a tool created by Visa itself, based on 3-D Secure technology, that ensures that only authorized cardholders are able to complete online transactions with Visa-branded cards. For merchants who deal with high rates of true fraud chargebacks, Verified by Visa can offer significant protection.

What Is Verified by Visa?

Verified by Visa is Visa’s version of an anti-fraud tool based on 3-D Secure technology. Every major card network offers one—Mastercard has SecureCode and Mastercard Identity Check, American Express has SafeKey, and Discover’s version is called ProtectBuy. They all do the same thing for transactions carried out under their respective networks, which is to verify the cardholder’s identity while the transaction is taking place.

At first, Verified by Visa accomplished this by having cardholders enroll in the Verified by Visa program through their issuing bank and create a password.

During checkout with merchants participating in the Verified by Visa program, the customer will get a pop-up window that prompts them to enter this password to complete their transaction.

While this implementation of 3-D Secure is still in use, there is a new version called 3-D Secure 2.0 that's implemented by Visa under the name Visa Secure. The newer Visa Secure system can attempt to verify cardholder identities by using contextual data instead of interrupting the transaction process. In most cases it can do so, but when it can’t, it can text a one-time code to the cardholder’s device, or use alternative authentication methods such as biometrics.

The newer version usually provides a more friction-free checkout experience for legitimate customers and is more secure because it relies on multiple authentication factors. However, either version of the system will be effective at stopping the average fraudster.

Fraudsters typically obtain payment credentials in bulk, on the dark web, and will not include any additional information that could help the fraudster get around a 3-D Secure authentication request.

What Is 3-D Secure Technology?

The “3-D” in 3-D Secure stands for the three domains of the issuer, the acquirer and merchant, and the system that enables them to work together. The idea is that by working together, everyone involved in the transaction process can play their part in identifying and stopping fraud.

The way this works in 3-D Secure is through a software plug-in that allows the merchant to exchange information with the issuer during the transaction process. The merchant can share details about the cardholder and transaction with the issuer, and the issuer can send back a verdict about whether or not they think the transaction is fraudulent.

The original implementation, with passwords, was effective—but only up to a point. Passwords can be guessed, cracked, stolen, and copied, and getting users on board with strong password requirements is always a challenge.

A transaction that’s only protected by two passwords—one to log in to the merchant’s site and one for 3-D Secure—isn’t optimally secure. By using additional authentication factors, such as biometric data or codes sent to a registered device or email address, 3-D Secure 2.0 presents a much more robust form of authentication that is fully in line with the strong customer authentication requirements mandated by laws like the revised Payment Services Directive.

The other benefit of 3-D Secure 2.0 is that it can be nearly frictionless. Behavioral analytics and transaction data can be used to verify most cardholders, and when a pop-up is required, it’s designed to be less disruptive to the checkout experience (especially for mobile shoppers).

What Do Merchants Need to Know About Using Verified by Visa?

Merchants should always use anti-fraud tools that are appropriate to their actual fraud and chargeback circumstances. Only by analyzing your data can you determine how many of your chargebacks are valid and coming from instances of true fraud.

If you are experiencing high rates of fraud on Visa cards, Verified by Visa may be the right solution. In some cases, you won’t even be liable for fraud that sneaks past the verification step.

The main caveat is that Verified by Visa and similar tools do increase checkout friction in some cases, which can lead to bad customer experiences and abandoned carts.

Merchants must weigh this against the reduction in fraud they expect to achieve. Alternative solutions, such as AI-based fraud filters, may generate less friction on successful checkouts but carry the risk of false positives that insult good customers.

Conclusion

One of the key elements in a strong chargeback prevention strategy is having the right arsenal of tools, most of which will be dedicated to detecting and stamping out fraud.

Choosing the right fraud tools, integrating them with your existing systems, and configuring them for maximum efficacy (and minimal false positives) can be difficult and time consuming. Helping you master these tools and maximize your ROI is one of the things that a good chargeback management firm will be happy to take on. 

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