3DS 2.0 Explained: A Merchant’s Guide to Risk-Based Authentication

With the rise in digital payments in India, ensuring a smooth and secure passage to online transactions is a major challenge for merchants. Card not present (CNP) fraud, regulatory requirements, and changing customer attitudes have driven authentication models to modernise. This is where 3DS 2.0 comes into play.

Intended to address the limitations of its predecessor, 3-D Secure 1.0, 3DS 2.0 introduces a risk-based, data-powered approach to authentication that enables security and friction-free user experiences to coexist. In this post, we read in detail about 3DS 2.0, how it functions, and its application to the Indian payment landscape & merchants’ understanding of what is required to implement 3DS effectively.

What is 3D Secure, and Why Was an Upgrade Needed?

3D Secure (3DS) EMVCo developed an authentication protocol, used by card networks globally (Visa, Mastercard, American Express). In India, 3DS is widely used as part of the RBI-mandated Additional Factor Authentication (AFA) framework for most domestic card transactions.

However, the first 3DS had some major limitations:

• High dependence on OTPs along with static passwords
• Poor mobile optimisation
• Blunt exchange of data, more friction prevalent.
• A rise in cart abandonment because of step-up authentication

3DS 2.0 was launched to combat this by allowing for context-based, risk-based authentication rather than a one-size-fits-all system of authentication.

How 3DS 2.0 Works: A Risk-Based Authentication Model

At the core of 3DS 2.0 is the ability for issuers to determine the risk of a transaction using rich contextual data provided by merchants. Rather than blindly generating an OTP for every transaction, the system uses fraud signals dynamically.

The Information Endpoints for Risk Assessment

Traders can distribute over 100+ data points, such as:

• Information about the user’s device (such as OS, browser, and IP address).
• Transaction amount and frequency
• Customer behaviour and purchase history
• Shipping and billing address consistency

The issuer is now able to determine, using this information, whether:

• Silently approve the transaction (frictionless flow), or
• Ask for second factor validation (OTP, fingerprint, or app authorisation)

This smart decisioning is what sets 3DS 2.0 apart from older versions.

Importance of 3DS 2.0 in the Indian Payments Landscape

In India, we have one of the most secure card verification systems in the world. RBI, through its Additional Factor Authentication (AFA) mandate, helps reduce fraud but has also become transaction friction.

As a result of growing e-commerce and cross-border payment flows, 3DS 2.0 offers an opportunity to make UX work for compliance.

It is for the following reasons that it is relevant in India:

• Development of cross-border e-commerce which OTP is not always applicable
• Growth in mobile app transactions, demanding frictionless in-app authentication
• Need to reduce false declines without compromising security

Although the RBI regulations are still applicable for domestic card transactions, 3DS 2.0 supports risk-based authentication and can accommodate regulatory exemptions where permitted, particularly in international and issuer-led transaction flows.

Benefits of 3DS 2.0 for Merchants

1. Reduced Checkout Friction

In frictionless authentication, the low-risk transactions can be done without an OTP challenge, leading to better rates of transaction conversions.

2. Better Mobile and App Experience

3DS 2.0, in practice, supports Native app flows, biometric authentication, and SDK-based integration, making this version ideal for India’s mobile-first consumer base.

3. Improved Fraud Detection

Deeper data exchange enables issuers to improve risk decisions, leading to less fraud and false positives.

4. Liability Shift

Under 3DS 2.0, once authentication is successfully performed, merchants can potentially take advantage of fraud liability protection (subject to card network rules).

Key Differences Between 3DS 1.0 and 3DS 2.0

Implementation Considerations for Indian Merchants

Merchants looking to adopt 3DS 2.0 should consider the following:

• Payment Gateway Readiness:Ensure that your gateway is compliant with the specifications of EMV 3DS and local regulatory requirements.
• Compliant: Map authentication flows as per RBI AFA guidelines for domestic transactions.
• Data Accuracy:Clean transaction data enhances the quality of risk assessment.
• Customer Communication:Teach new authentication flows to customers so they feel more confident and less confused.

You should also track post-implementation authentication performance metrics, including challenge rates, approval rates, and drop-offs.

Future for Risk-Based Authentication in India

As India progresses toward higher digital payment adoption, the authentication framework will evolve. Information sharing about tokenisation, delegated authentication, and biometric verification suggests that the industry is moving towards an invisible model of security.

3DS 2.0 sets the stage by allowing for secure, data-based decision-making while maintaining regulatory protections to support this vision of the future. For merchants, learning this framework is not just about compliance, though. It’s simply smart business to think this way for the long-term health of your business.

Conclusion

3DS 2.0 is a major move in the direction of intelligent, risk-based authentication that’s more consistent with today’s digital and mobile-first payments world. It helps merchants in maintaining a balance among security, regulation compliances and customer experience by making sure that frictionless flows are possible for low-risk transactions through richer exchange of information.

For Indian merchants who are working around the complex compliance road with evolving customer expectations, equipping their websites and apps with 3DS 2.0 is key to laying down secure, scalable, and future-ready payment paths.