4 Methods for Payment Authentication

As e-commerce continues to grow, so does the risk of fraud. Juniper Research reports that the global losses from online payment fraud will reach €43 billion in 2023, a 16% jump in just 12 months. Keeping payments and consumer data safe is a must for all businesses. This is why, to ensure transactions are secure and from a verified source, merchants need to authenticate online payments. All banks, payment processors, and businesses use payment authentication to prevent data breaches, fraudulent transactions, and chargebacks.

What is Payment Authentication?

An authentication process confirms the identity of the one who initiates a payment. And laws in the EU have made it necessary for all businesses to implement Strong Customer Authentication (SCA).

Payment authentication confirms a person’s identity through factors such as:

1. Knowledge: This factor uses information that only the cardholder possesses. It can include a password, PIN, signature, or any other personal info. like your maiden name or your pet’s name.
2. Inherence: This includes biometric data such as voice, iris, facial scans, etc.
3. Possession: This is something that only the user possesses, like a card or phone.
4. User Location: Confirming a user’s location is another way to verify a payment. There is a high chance of a transaction being declined if a user’s card is registered in one country but used in a different region. This is a useful way to support strong authentication in cross-border trade and card-not-present transactions.

How to Authenticate Payments?

Merchants need to balance security and convenience to keep payments safe and to deliver a superior customer experience. Here are a few methods to authenticate digital payments:

Two-Factor Authentication

2-Factor Authentication or 2FA is a type of multi-factor authentication that will help your business comply with EU regulations like PCI-DSS, PSD2, GDPR, etc. It offers a simple yet more secure login experience that keeps both businesses and consumers safe from fraud.

2FA requires a user to provide more details than just a password before they can access a specific app, online account, or other services. This info. is unique to the user and includes two out of the three forms of ID mandated by the SCA guidelines. This can be a one-time password, a text, a push notification, or a biological factor like a fingerprint or iris scan.

The revised Payment Services Directive or PSD2 makes it mandatory to apply 2FA to all digital transactions in the EU.

Read more: 2-factor Authentication and PSD2 in Europe: What Merchants Need to Know

3D Secure 2

This is a global authentication protocol to prevent the misuse of a person’s credit/debit card in a Card-not-Present transaction, for instance, a purchase made on an e-commerce website. 3D Secure 2 or 3DS2 is significant for merchants in the EU because it allows you to meet the requirements of SCA.

3DS2 is a risk-based authentication tool that offers several user-friendly features such as biometric scan and in-app authentication. It also works with e-wallets such as Apple Pay or Google Pay, which makes the authorization process much smoother. It adds an extra layer of security to keep users safe from fraud.

3DS2 requires the merchant to send additional contextual info. to the issuer bank to help them verify a cardholder. This can be the person’s billing address, geo-location, transaction history, device ID, purchase amount, etc. If this data helps to authenticate the user, then the payment gets completed. If not, then the customer has to go through a challenge flow (depending on the risk level). He/she will then have to verify their ID via additional steps like biometrics, and/or two-factor authentication.

If the transaction is low-risk, the cardholder does not need to do anything further. The issuer sends the results to the merchant, who in turn submits it for authorization with a flag indicating the authentication result.

Read More: What is 3D Secure 2.3 And Why Do Merchants in Europe Need to Use It?

Biometric Authentication

With biometric authentication, you can identify a person based on unique and specific biological and behavioral data such as their voice, fingerprint, retina scan, etc. Hence this form of authentication is more secure and reliable than a password or a PIN. Currently, biometrics is used extensively in multifactor authentication.

Users’ data is encrypted and stored securely, making it one of the most secure authentication methods available. Plus, it causes less friction during the checkout process and gives buyers a seamless experience.

Read More: How Biometrics Make Payments Safer

Delegated Authentication

Usually, it’s the issuer i.e., the customer’s bank who manages the authentication process. But in delegated authentication, it is the merchant or the acquirer who directly authenticates the customer on behalf of the issuer. The acquirer can be a reliable third party like your PSP.

This form of authentication helps merchants leverage industry authentication standards to create more balance between convenience and security. It is a highly secure process that reduces fraud, provides a seamless user experience, and helps increase conversions. It also helps you meet all the SCA norms while ensuring you deliver a good checkout experience to your customers.

To use delegated authentication, merchants need to have a payment system that supports the latest version of 3DS2. They also need to have a strong fraud prevention system in place.

Read More: How to Use Delegated Authentication to Make Your SCA Process Smoother

Final Thoughts

Payment authentication can be done in several ways. The methods will vary for different businesses, depending on their risk level. Providing a mix of these methods works best as it will make your site more secure and give your customers the peace of mind they seek.

How Can Novalnet Help with Payment Authentication?

We can help you with authenticate and process payments in a secure and PCI-DSS-compliant environment. From 2FA to biometrics, we offer a wide range of options to suit businesses of all sizes.

We are a global PSP that is trusted by Europe’s leading brands to process payments. Our technology helps you to accept and send payments globally in 125+ currencies in 150+ automated country-specific payment methods. Our instant payment plug-ins helps you set up your payments within minutes with minimal coding. Our AI-based risk management tools and advanced analytics helps you design the best payment experiences for your clients.

Give us a call today to know more.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.