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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

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February 28, 2022

5G and 3DS: A Perfect Pair?

Not that long ago, when you heard the term "5G," you would probably mentally translate it to "five grand" or "five thousand dollars." Today, 5G refers to the fifth generation of mobile network wireless communications technology. Network operators promise that 5G technology will deliver much faster data transmission speeds, lower latency, and greater signal reliability, which consumers may not truly realize on the mobile front for several years as operators upgrade their cell tower networks. But are there benefits on the payments side we're likely to see?

My colleague Doug King first raised this question in a Take On Payments post in September 2018, when the industry thought 5G was on the cusp of becoming a reality. While the pandemic and regulatory concerns about security and safety have slowed implementation, it is now underway.

We have also previously written about the evolution of 3DS (short for "three-domain secure"), which was developed in 2000 to improve the authentication of a legitimate consumer's payment transaction with a merchant. The first version of 3DS was unsuccessful in the United States for a variety of reasons centered on poor consumer experiences that resulted in high shopping cart abandonment rates. However, as the share of digital transactions of overall retail sales continued to grow, the payments industry knew that new tools were needed to combat increasing fraud.

Recognizing that the 3DS process needed an overhaul to meet consumer, issuer, and merchant requirements, EMVCo released EMV 3DS 2.0 specifications video fileOff-site link in 2016. While this version results in a more complex transaction and was slow to gain traction in the marketplace until recently, its strength relies on the merchant's ability to send additional data to the payment card issuer. This additional information includes transaction, method of payment, and payment device information and is intended to help the issuer to run fraud mitigation tools more effectively, better detecting the fraudulent transactions and not denying the legitimate ones. The issuer, if still concerned about a transaction's legitimacy, can perform stepped-up authorization with the customer, including out-of-band confirmations. An out-of-band confirmation is authentication occurring on a different channel than the one initiating the transaction, such as when a banking app sends an email or text with a password the customer must enter in the app to carry out the transaction. A recent reportOff-site link indicates that 10 percent or less of transactions require this stepped-up authorization, and merchant adoption increased 50 percent during Q4 2021 compared to Q4 2020.

So how will 5G and 3DS work together? Transmitting and handling payment authorization messages with the additional data the EMV 3DS 2.0 specifications require can increase transaction time. Slow response time (latency) is a major factor in a consumer abandoning a shopping cart and the merchant losing a sale. The mobile network benefits of 5G will be realized over time, but many operators have already begun to support local 5G networks for small to mid-sized businesses requiring fast data speeds.

Such networks will allow these businesses to handle the additional message data, as well as additional payment devices, while providing better service levels. While the GSMAOff-site link (Global Systems for Mobile Communications Association) estimates it will take until 2025 before half of the mobile communications in North America will be on a 5G network, the uptake in the United States is expected to be faster.

I believe that the further adoption of EMV 3DS will be enhanced with the continued implementation of 5G technology in the United States. We will continue to monitor both technologies as well as when their expected benefits start to come about.