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The rise of card-not-present, or CNP, transactions, particularly in online shopping, has introduced unique challenges. Unlike in-person transactions, where methods like chip authentication provide an added layer of security, CNP transactions lack these safeguards. As e-commerce continues to grow, so does the exposure to fraud, creating a pressing need for innovative and comprehensive solutions.
Other regions, such as the European Union, have successfully implemented measures to combat fraud. The EU’s Payment Services Directive 2, or PSD2, mandates strong customer authentication, or SCA, for online payments, requiring multifactor authentication to verify transactions. This has led to a significant reduction in fraud and enhanced consumer confidence. While the U.S. has its own robust financial systems, aligning with global best practices could provide additional protection for consumers and businesses.
One technology that shows promise is 3D Secure 2.0, or 3DS2, which offers a secure and seamless way to authenticate online payments. By providing additional verification for high-risk transactions while minimizing friction for lower-risk ones, 3DS2 strikes a balance between security and convenience. Although it has been widely adopted in other parts of the world, its implementation in the U.S. has been uneven. Encouraging broader adoption of 3DS2 across merchants of all sizes would be a significant step forward in reducing fraud vulnerabilities.
In 2023, U.S. fraud losses were 11.01 cents per $100 in card volume, compared to the global average of 6.58 cents. This disparity underscores the importance of enhancing fraud prevention efforts domestically. Tokenization, for example, is a method that replaces sensitive card data with unique identifiers and has proven effective in reducing fraud in regions where it is widely used. Embedding such practices more consistently across U.S. payment systems could yield substantial benefits.
Criminal tactics are also becoming increasingly sophisticated. For instance, some fraudsters use AI to create convincing replicas of legitimate websites, tricking consumers into sharing their payment information. Others exploit gaps in know-your-customer and know-your-business processes to set up fraudulent merchant accounts. These challenges call for a multifaceted approach that includes both technological advancements and enhanced industry standards.
Looking forward, the U.S. payment ecosystem has the opportunity to adopt technologies like 3DS2 more broadly and to consider regulatory frameworks inspired by PSD2. While these measures would require collaboration across industry stakeholders, they could significantly reduce fraud losses and boost trust in the system. With projections indicating that card fraud could total $403.88 billion globally over the next decade, including $167.31 billion on U.S.-issued cards, the time to act is now.
Strengthening fraud prevention is not just about reducing financial losses; it’s also about maintaining consumer confidence and ensuring the long-term resilience of the payment ecosystem. By leveraging proven solutions and aligning with global best practices, the U.S. can build a safer and more secure environment for all stakeholders.