Temptation to Replicate Success Elsewhere
Given the effectiveness of 3D Secure in Europe, it’s natural that businesses operating globally would want to replicate this model in other regions. In theory, asking for extra verification during checkout seems like a universal way to prevent unauthorized transactions. Companies began to test the implementation of 3D Secure in markets where it isn’t legally required, such as the United States.
The idea was simple: if it works in Europe, it should work in the US. However, the results from these experiments revealed a completely different reality. Instead of improving fraud prevention and approval rates, 3D Secure often led to lower transaction authorization rates. This was unexpected and prompted a deeper investigation into the behavior of issuers in the US market.
How US Issuers View 3DS Requests
The findings uncovered a stark contrast in issuer behavior between Europe and the United States. In Europe, a 3D Secure request typically signals that a transaction is legitimate and secure. Issuers have trained their systems to trust the additional layer of verification and approve transactions that pass authentication.
In the US, however, the same 3D Secure request can trigger the opposite reaction. Many issuers interpret it not as a security measure but as a red flag. The assumption appears to be that the merchant only asked for 3D Secure because the transaction seemed risky. As a result, rather than putting the transaction through a challenge process, US issuers often choose to decline it outright.
This difference in interpretation changes the entire dynamic. What is seen as a trust-building signal in one market is seen as a warning sign in another. It highlights just how important local context is when implementing fraud prevention strategies.
Role of Consumer Expectations
One reason for this disparity may be the level of consumer familiarity with 3D Secure. In Europe, customers are accustomed to authentication prompts. These steps are now a normal part of the online shopping experience. Consumers understand why they’re being asked to verify their identity, and they trust the process.
In contrast, US consumers rarely encounter 3D Secure prompts. When they do, the experience can feel unfamiliar or even suspicious. This discomfort can lead to increased abandonment rates and greater hesitation, which in turn affects the overall performance of the transaction. If consumers don’t complete the challenge, or if issuers choose not to initiate it in the first place, the transaction fails.
Data from Real-World Experiments
To better understand the impact, real-world experiments were conducted. A group of US-based businesses introduced 3D Secure for a limited period and compared the results to their prior transaction performance. Before implementing 3D Secure, these businesses saw authorization rates averaging 87 percent.
During the experiment, two types of 3D Secure flows were observed: challenged and frictionless. For transactions where customers completed a challenge, the authorization rate remained consistent at 87 percent. This shows that when authentication was completed successfully, it didn’t hurt the transaction.
However, for transactions routed through frictionless flows—where no challenge was presented—the authorization rate dropped to 82 percent. This suggests that US issuers were more likely to decline these transactions, possibly because they interpreted the lack of a challenge as a sign of unresolved risk.
The Frictionless Flow Dilemma
The concept of frictionless authentication is central to understanding this outcome. In theory, frictionless flows are designed to make transactions smoother. If a transaction appears low risk, it can be approved without asking the customer for additional input.
In Europe, frictionless flows are carefully managed. Issuers only allow them when their fraud models are highly confident that the transaction is legitimate. This selective approach minimizes friction while keeping fraud levels low.
In the US, however, frictionless flows appear to be used more indiscriminately. Many major issuers default to frictionless authentication, regardless of the transaction’s risk profile. In some cases, banks sent 100 percent of transactions through without any challenge. While this may improve the customer experience in the short term, it also exposes merchants and issuers to higher fraud risks.
Misaligned Incentives and Liability Shifting
Another factor that may influence US issuer behavior is the issue of liability. In many cases, the liability for fraudulent transactions can shift depending on whether authentication was attempted. By requesting 3D Secure, merchants may be trying to move liability to the issuer. But if no challenge is issued, the issuer might still be responsible for the outcome.
US issuers may view these transactions with skepticism, especially if they believe the merchant only initiated 3D Secure because the transaction looked suspicious. This perception can lead to higher decline rates, even if the actual risk hasn’t increased. Without a regulatory framework to guide behavior, issuers must rely on their own internal models, which can vary widely in quality and consistency.
Impact on Conversion and Customer Trust
From a business perspective, the consequences are significant. Lower authorization rates mean fewer successful sales. Customers who abandon transactions due to unexpected verification prompts may choose not to return. And when legitimate transactions are declined, both revenue and customer trust are at risk.
These effects compound over time. A well-meaning effort to reduce fraud can end up reducing conversion instead. Businesses are left trying to balance security and user experience in an environment where the tools they use may be interpreted differently depending on the issuer.
The Case for Market-Specific Strategies
The key takeaway is that fraud prevention strategies cannot be copied wholesale from one region to another. What works in Europe may not work in the United States. The regulatory environment, issuer behavior, and consumer expectations all play critical roles in determining how authentication tools will perform.
For businesses operating in multiple markets, this creates a challenge. They need solutions that can adapt to local conditions while still maintaining high levels of security. It also means investing in technology and analytics that can help assess the true impact of different authentication strategies, rather than relying on assumptions or results from other regions.
Future of Authentication in Unregulated Markets
Looking ahead, the success of authentication methods like 3D Secure in markets without regulatory mandates will depend on improved issuer collaboration and better alignment between all parties in the transaction process. This includes educating issuers about how and why merchants are using authentication, as well as improving risk models to more accurately interpret those signals.
There is also potential for new technologies to fill the gap. Alternatives that combine strong security with a seamless user experience—such as device-based biometrics or passkey authentication—could offer a better solution in markets like the US. But for now, businesses must navigate the limitations of the current system and adjust their strategies accordingly.
Issuer Authentication Behavior
Understanding how issuing banks interpret and respond to 3D Secure requests is essential for crafting an effective fraud prevention strategy. In the US, issuer behavior around authentication presents a particularly complex challenge. While 3D Secure is designed to enhance transaction security through customer verification, the way issuers handle these requests has significant implications for authorization success and fraud detection.
In regulated markets, issuers have clear guidelines and a shared understanding of how and when to apply two-factor authentication. These frameworks have led to an ecosystem where frictionless authentication is only used under controlled circumstances. By contrast, issuers in unregulated markets like the US have far more discretion, and the results can be inconsistent, counterintuitive, and sometimes counterproductive.
How Frictionless Authentication Is Intended to Work
Frictionless authentication in the 3D Secure framework refers to a flow where the customer is not prompted for additional input during checkout. If a transaction is evaluated as low-risk by both the merchant and the issuer, it is allowed to proceed without challenge.
This approach is intended to preserve the user experience while still leveraging risk signals to detect fraud. It relies on sophisticated fraud models and data sharing between merchants and issuers. Ideally, only the safest transactions qualify for this path, allowing businesses to maintain high conversion rates without compromising on security.
The Overuse of Frictionless Flows by US Issuers
In the US, the frictionless pathway is often applied far more broadly than in other markets. During a recent analysis, it was found that several of the top ten US banks sent nearly all 3D Secure transactions through frictionless flows. In one case, a major bank applied frictionless authentication to 100 percent of the transactions it received.
This overuse raises several concerns. Without adequate evaluation, high-risk transactions may slip through without customer verification, exposing both issuers and merchants to potential fraud. More troubling, this behavior suggests that frictionless authentication is being treated not as a security measure but as a default setting.
The absence of a regulatory mandate leaves US issuers with few incentives to challenge transactions. Without the pressure of compliance, there is little push to refine authentication models or adopt more secure defaults. This results in a fragmented environment where merchants cannot predict how their authentication requests will be handled.
Unintended Consequences for Authorization Rates
One of the most surprising findings in the US market is that requesting 3D Secure can actually lead to lower authorization rates. Businesses that introduced 3D Secure saw a decline in successful transactions, especially when those transactions were routed through frictionless flows.
For example, prior to implementing 3D Secure, a sample group of businesses had authorization rates averaging 87 percent. When they introduced 3D Secure and transactions were successfully challenged and authenticated, the authorization rate remained at 87 percent. However, when the same transactions went through the frictionless flow, authorization rates dropped to 82 percent.
This pattern suggests that some issuers interpret the presence of a 3D Secure request as a risk signal in itself. Rather than viewing authentication as a tool for fraud prevention, issuers may suspect that merchants are trying to shift liability or preemptively address suspicious behavior. As a result, issuers are more likely to decline these transactions outright, regardless of the actual risk profile.
Risk of Misalignment Between Merchants and Issuers
These findings reveal a fundamental misalignment in how authentication is perceived. Merchants view 3D Secure as a proactive step toward security. Issuers, in some cases, view it as an indication that the transaction might already be compromised.
This divergence is exacerbated by the lack of shared standards in unregulated markets. In the absence of guidelines or incentives, issuers develop their own internal rules for handling authentication. These rules may be outdated, overly conservative, or simply not designed to interpret 3D Secure signals accurately.
For merchants, this unpredictability is a serious problem. Without consistent issuer behavior, it becomes difficult to fine-tune authentication strategies. A method that works well for one bank may fail for another, even if the transaction and risk profile are identical.
Comparing Issuer Behavior Across Regions
A broader analysis reveals even more about how issuer behavior differs between regulated and unregulated markets. In regions with Strong Customer Authentication mandates, issuers are required to evaluate transactions carefully before allowing frictionless flows. These decisions are backed by regulatory oversight and standardized fraud models.
In these markets, a clear correlation emerges: higher authentication success rates are linked to higher authorization rates. This means that when customers complete a challenge or a frictionless authentication, issuers feel confident in approving the transaction. The alignment of incentives, behavior, and regulation creates a cohesive ecosystem where authentication supports both fraud prevention and customer experience.
In the US, the pattern is reversed. As more transactions are authenticated—particularly through frictionless flows—authorization rates tend to fall. This inverse relationship suggests that issuers are not using authentication success as a trust signal. Instead, they may be declining transactions based on the mere presence of a 3D Secure attempt.
Role of Liability in Decision-Making
At the core of these behaviors lies the question of liability. When a transaction is authenticated through 3D Secure, liability for fraud may shift from the merchant to the issuer. In regulated markets, this shift is a known quantity, governed by rules that ensure fairness and predictability.
In the US, liability shifts are less structured. Some issuers may respond to 3D Secure requests with greater scrutiny, interpreting the request as an attempt to offload responsibility. This could lead to more declines, even when the transaction would otherwise appear legitimate.
From a risk management perspective, issuers must balance the cost of fraud with the cost of false declines. Without clear incentives or data-sharing agreements, many opt to err on the side of caution, declining transactions that appear unfamiliar or deviate from established patterns.
Challenge of Educating Issuers and Aligning Incentives
Improving authentication outcomes in the US will require greater education and collaboration between merchants and issuers. Many issuers may not be aware of why merchants are using 3D Secure or how their systems are interpreting those signals. Transparency is limited, and feedback loops are often incomplete.
By sharing more data and context about the use of authentication, merchants can help issuers build better risk models. Likewise, issuers must be encouraged to view authentication as a tool rather than a red flag. This will involve updating internal policies, investing in better fraud detection technologies, and aligning their practices more closely with global standards.
Alternative Paths to Secure Transactions
Given the limitations of frictionless 3D Secure in the US, businesses are increasingly exploring alternative methods of securing online transactions. Digital wallets, device-based authentication, and biometric verification offer promising avenues for maintaining both security and user experience.
These methods often come with built-in trust factors, such as device recognition and tokenized payment credentials. Because they are native to the device and familiar to the user, they can deliver strong authentication with minimal friction. This can help bypass some of the challenges associated with issuer skepticism and unfamiliar 3D Secure flows.
While these solutions are not universal, they offer a more consistent experience in markets where traditional authentication tools face resistance. By incorporating a range of verification methods, businesses can create a more resilient strategy that adapts to different issuer behaviors and customer preferences.
Building a Data-Driven Authentication Strategy
One of the most effective ways to navigate this complex landscape is to adopt a data-driven approach to authentication. By analyzing transaction patterns, issuer responses, and customer behaviors, businesses can identify which authentication methods work best under specific conditions.
This requires investing in analytics and experimentation. A/B testing different authentication flows, tracking success rates across issuers, and evaluating the impact of authentication on conversion can help build a smarter, more adaptive fraud prevention framework.
Data-driven strategies also allow businesses to spot emerging trends and pivot quickly when behavior changes. For example, if a particular issuer begins declining more frictionless 3D Secure transactions, businesses can adjust their routing logic or authentication thresholds to minimize the impact.
Preparing for Future Innovation in Authentication
The field of online authentication is rapidly evolving. New technologies and standards are being developed to create more secure, user-friendly experiences. Passkeys, biometric logins, and behavioral analytics are just a few of the innovations on the horizon.
For businesses operating in the US, staying ahead of these changes will be critical. The shortcomings of current issuer behavior should not be seen as fixed barriers, but rather as opportunities for improvement. By engaging with new technologies, collaborating with ecosystem partners, and refining their strategies, businesses can help shape a more effective and equitable authentication landscape.
Understanding the Limits of One-Size-Fits-All Approaches
When it comes to transaction authentication, there is no universal formula that fits every market. The regulatory landscape, issuer behavior, consumer familiarity with security tools, and local fraud patterns all vary significantly from region to region. Businesses operating globally must be prepared to adapt and localize their fraud prevention strategies accordingly.
Assuming that an authentication model successful in one market will perform identically in another can lead to unexpected outcomes. This is particularly true when comparing regulated markets with structured authentication requirements to unregulated environments where issuer responses are more variable.
Learning from these differences and building flexible, responsive systems are essential to maintaining conversion while minimizing fraud risk. Doing so involves recognizing the nuances of each region’s financial ecosystem, the behaviors of its financial institutions, and the preferences of its consumers.
Building Regional Playbooks for Authentication
One of the most effective ways to handle market variability is to develop region-specific authentication playbooks. These playbooks should be based on rigorous data analysis, continuous testing, and a clear understanding of local norms and expectations.
For example, in European countries that enforce Strong Customer Authentication regulations, businesses need to comply with mandatory two-factor challenges for most transactions. Here, smart routing systems and machine learning optimizations can help reduce friction by identifying exempt transactions or using delegated authentication methods.
In the United States, however, the situation is different. Issuers are not obligated to support two-factor authentication flows, and many treat unfamiliar authentication attempts as risky. In this market, businesses may benefit from relying more heavily on secure alternative payment methods or prioritizing passive risk assessment techniques that don’t involve visible authentication prompts.
By documenting successful practices, issuer-specific trends, and recommended fallback flows, businesses can create adaptable strategies tailored to each region’s environment.
Leveraging Machine Learning for Dynamic Optimization
Machine learning plays a central role in modern authentication strategies. By analyzing hundreds of data points per transaction, machine learning models can predict the likelihood of fraud, optimize routing decisions, and dynamically determine when and how to request authentication.
These models consider a wide array of signals, including device characteristics, location data, transaction history, behavioral patterns, and issuer-specific response rates. This allows businesses to avoid blanket rules and instead make context-sensitive decisions that optimize for both security and user experience.
For example, if a specific issuer consistently declines frictionless 3D Secure transactions, the model can learn to avoid requesting 3D Secure from that issuer altogether. Alternatively, if a returning customer uses the same device and IP address as in previous sessions, the model might approve the transaction without requiring any additional input.
Continuous training and experimentation are key to keeping these systems effective. As issuer behavior, consumer habits, and fraud tactics evolve, machine learning models must be updated regularly to remain relevant.
Prioritizing Conversion Without Sacrificing Security
Balancing security and conversion is one of the toughest challenges in ecommerce. Every additional step in the checkout process increases the risk of customer drop-off, but reducing security measures can lead to increased fraud and chargebacks.
A market-specific strategy must carefully navigate this tension. In some regions, consumers are familiar with two-factor authentication and expect to verify their transactions. In others, unexpected prompts can confuse or alarm customers, leading them to abandon the checkout.
Businesses must collect data on drop-off rates, authentication failures, and chargebacks to find the sweet spot for each market. For high-risk transactions, it may be worth accepting a slight increase in friction to prevent fraud. For loyal customers in low-risk segments, a smooth, invisible flow may be more appropriate.
Ultimately, the goal is to design an authentication system that works for the business and its customers, rather than one that simply satisfies technical requirements.
Embracing Alternative Authentication Methods
In regions where traditional 3D Secure flows are poorly supported or misunderstood by issuers, alternative authentication methods can offer better outcomes. Digital wallets, device-based authentication, and biometric verification provide high levels of security while minimizing user friction.
Digital wallets are widely adopted and often come with built-in protections, such as tokenization and biometric identity checks. Since these payment methods are linked to customer devices and accounts, they can offer a seamless yet secure experience.
Similarly, passkey-based authentication and behavioral biometrics are emerging as promising alternatives. These tools use device familiarity, typing speed, and even mouse movements to verify a user’s identity. Because they operate in the background, they can authenticate without disrupting the user experience.
By offering a range of authentication options and dynamically selecting the best one based on risk, issuer, and user behavior, businesses can reduce fraud and improve conversion across multiple markets.
Managing Liability Across Different Jurisdictions
Another important consideration in authentication strategy is how liability shifts in the event of fraud. Different markets have different rules governing who bears the cost when a transaction turns out to be fraudulent.
In many cases, using a strong authentication method can shift liability from the merchant to the issuer. However, this shift depends on the local legal framework, the behavior of the issuer, and whether the authentication was considered valid and sufficient.
Businesses need to understand the liability landscape in each market they operate in. In some cases, it may be beneficial to authenticate aggressively to ensure liability protection. In others, the cost of failed authentications and lost sales may outweigh the potential benefits.
Legal advice, local partnerships, and data from past transactions can help clarify these tradeoffs and inform the business’s approach to risk management.
Designing User-Centric Authentication Experiences
Authentication doesn’t exist in a vacuum. It’s part of the broader checkout experience, and how users perceive it can significantly influence their likelihood of completing a purchase.
Designing a user-centric authentication flow means minimizing confusion, clearly communicating the reasons for authentication, and ensuring that every interaction feels trustworthy and familiar. Language, layout, and timing all play a role in creating a seamless experience.
This becomes particularly important in markets where 3D Secure is not the norm. When customers are presented with an unfamiliar authentication prompt, they may assume something is wrong, triggering concerns about phishing or fraud.
Clear branding, consistent messaging, and thoughtful design can help mitigate these risks. By building trust into the authentication process, businesses can reduce abandonment and improve customer satisfaction.
Collaborating With Issuers and Industry Partners
Improving the authentication landscape requires collaboration between merchants, issuers, and technology providers. Issuers must be educated about new authentication methods, informed about merchant use cases, and encouraged to adopt better practices.
Feedback loops are essential to this process. When issuers decline transactions or bypass authentication, businesses need to understand why. Sharing data, insights, and performance metrics can help identify gaps and refine both issuer and merchant systems.
Industry groups, payment networks, and security organizations also play a role in shaping the future of authentication. By participating in these ecosystems, businesses can stay informed about upcoming standards, pilot new technologies, and advocate for improvements. Over time, these collaborations can lead to more predictable and supportive issuer behavior, allowing businesses to deploy authentication strategies with greater confidence.
Preparing for Evolving Regulatory Environments
The regulatory landscape around authentication is constantly evolving. As digital commerce grows and fraud becomes more sophisticated, governments and industry bodies are introducing new rules and standards.
Businesses must monitor these developments and be prepared to adapt quickly. What is optional in one market today may become mandatory tomorrow. For instance, regions that currently have no authentication requirements may adopt frameworks similar to Strong Customer Authentication in the future.
Proactive compliance and flexible system design are critical. By building modular authentication systems that can be updated easily, businesses can stay ahead of regulatory changes and avoid disruptions.
At the same time, staying informed about global trends can provide early signals about where the industry is headed. Emerging standards around passkeys, delegated authentication, and device-based trust signals suggest a future where authentication is increasingly seamless and secure.
Creating a Long-Term Authentication Roadmap
Authentication is not a one-time project. It requires continuous attention, investment, and evolution. As markets change, new fraud patterns emerge, and technologies advance, businesses must revisit their strategies and refine their tools.
Creating a long-term roadmap involves setting clear goals for fraud prevention, customer experience, and regulatory compliance. It means investing in analytics, infrastructure, and partnerships that support dynamic adaptation. It also requires a commitment to understanding customer behavior and using that knowledge to guide design decisions.
By thinking strategically and planning for the future, businesses can ensure that their authentication systems remain effective, scalable, and aligned with their broader goals. They can also build trust with customers, reduce losses, and improve their ability to compete in an increasingly global marketplace.
Conclusion
The evolving landscape of online payments demands more than a reactive approach to fraud prevention. As demonstrated through this three-part analysis, applying a single fraud strategy across diverse markets can lead to unintended consequences—reduced authorization rates, inconsistent issuer behavior, and increased customer friction.
In Europe and the UK, regulatory frameworks like Strong Customer Authentication have created an ecosystem where two-factor authentication is the norm, supported by mature issuer practices and consumer familiarity. In contrast, the US market remains more fragmented. There, issuers often interpret authentication requests as fraud indicators rather than safety signals, resulting in lower approval rates even for legitimate transactions.
This divergence underscores the critical need for localized strategies that take into account the regulatory environment, issuer preferences, consumer expectations, and the technical readiness of the payment infrastructure. Fraud prevention isn’t just about blocking bad actors—it’s also about optimizing approval rates, maintaining a frictionless user experience, and preserving revenue.
Future-ready businesses are those that adopt dynamic, data-informed approaches. By leveraging adaptive machine learning systems, flexible authentication options, and issuer collaboration, businesses can fine-tune their strategy for each region. Alternative authentication methods—such as biometric systems, digital wallets, and device-bound verification—are paving the way for a more seamless and secure customer experience.
Ultimately, the key to successful fraud prevention lies in building systems that evolve with markets, rather than forcing markets to conform to a rigid standard. Companies that prioritize agility, intelligence, and customer trust will be best positioned to thrive in a complex, global commerce environment.
