India’s digital payment ecosystem is experiencing an explosive growth, with a staggering 44% compounded annual growth rate (CAGR) in the last fiscal year and over 95% of banking transactions now digitised. This monumental shift, championed by the “Digital India” initiative, places an unprecedented emphasis on payment security. At the heart of securing online card transactions is EMV® 3D Secure, a critical authentication layer that builds and sustains the most vital commodity in the digital economy: consumer trust.
This blog explores the intricate 3D Secure landscape in India, shaped by unique regulatory mandates, rapid market adoption, and the ever-present influence of UPI. We will explore the strategic implications for merchants, banks, and consumers in one of the world’s most dynamic digital payment markets.
What is 3D Secure?
3D Secure is an authentication protocol designed to add a layer of security to online card-not-present (CNP) transactions. Managed by EMVCo, which includes the world’s major card networks, it operates on a ‘three-domain model’ involving the card issuer, the merchant/acquirer, and an interoperability domain. The core purpose is to verify that the person making an online purchase is the legitimate cardholder, thereby reducing fraud and shifting the liability for fraudulent chargebacks from the merchant to the card issuer upon successful authentication.
The protocol has evolved significantly from its initial version, 3DS 1.0, which was often criticised for its clunky user experience involving full-page redirects and static passwords that led to high cart abandonment rates. The modern standard, EMV 3DS 2.0, represents a quantum leap forward. It leverages over 150 data elements (compared to just 15 in 3DS 1.0) to enable sophisticated, real-time risk assessments. This allows for frictionless authentication, where many transactions are approved without any cardholder interaction. When a challenge is needed, it’s seamlessly integrated into the checkout flow, often using biometrics or one-time passwords (OTPs) on mobile devices.
This evolution from a cumbersome hurdle to an intelligent, data-driven security layer has been pivotal, especially in a mobile-first market like India. The industry has decisively moved towards this superior protocol, with major card networks ceasing support for 3DS 1.0 in India by late 2023.
The RBI’s Iron Grip: Mandates Shaping the Market
Unlike most global markets where 3DS is optional, the Reserve Bank of India (RBI) has taken a uniquely stringent stance, making it a cornerstone of its digital payment security framework.
Key RBI Mandates for Online Card Transactions:
- Mandatory 3DS Authentication: The RBI mandates 3DS for all domestic online card transactions, regardless of the business size. This non-negotiable requirement is a primary driver of adoption across the country.
- Additional Factor of Authentication (AFA): AFA is compulsory for all online transactions, requiring verification through at least two of the following: something the user knows (password), something the user has (a mobile device for an OTP), or something the user is (biometrics). This mandate has now been extended to many international transactions using Indian cards.
- Card-on-File Tokenisation (CoFT): Since October 2022, merchants are prohibited from storing customers’ actual card numbers. Instead, they must use a system of tokenisation, where the card details are replaced with a unique, encrypted token specific to that card and merchant. This significantly reduces the risk associated with data breaches.
Digital Payment Security Controls (DPSC) Framework
Further bolstering this framework, the RBI’s Master Directions on Digital Payment Security Controls outline comprehensive guidelines for banks and payment system operators. These directions mandate stringent governance, multifactor authentication, secure application development, and enhanced data protection, with a phased implementation timeline extending to 2028 for smaller entities. This holistic approach signals the RBI’s intent to secure the entire payment ecosystem from end to end.
Adoption, Growth, and Market Dynamics
Driven by these strong regulatory tailwinds and a booming ecommerce sector, the 3D Secure authentication market in India is on a steep growth trajectory.
- Market Size: The market is projected to grow from $53.6 million in 2023 to $134.5 million by 2030, at a strong CAGR of 14%. In 2023, India already accounted for 4.5% of the global 3DS market and is the fastest-growing regional market in the Asia Pacific.
- Drivers of Adoption:
- Regulatory Compulsion: The RBI’s mandates are the primary catalyst.
- Ecommerce Boom: A rapidly growing base of online shoppers, predicted to hit 427 million by 2027, necessitates secure payment methods.
- Cybersecurity Needs: Rising online fraud makes 3DS a crucial defence for merchants.
- Mobile Payments: The protocol’s mobile-friendly 2.0 version is essential in India’s smartphone-dominated market.
Performance and Impact: A Unique Indian Story
The performance metrics for 3DS in India reveal a fascinating and counter-intuitive picture.
- Success Rates: While India ranks relatively low globally for its overall 3DS success rate (35th) and frictionless rate (36th), it ranks remarkably high for its 3DS challenge success rate (4th). This suggests that while more transactions are challenged due to local SCA requirements, Indian consumers are highly accustomed to and successful in completing these authentication steps.
- The Conversion “Killer” Becomes a Conversion Driver: Globally, 3DS is often seen as a “conversion killer”. However, in India, the opposite is true. Research shows that mandating 3DS has increased conversion rates by 30%. The additional security step is perceived by Indian consumers not as friction, but as a sign of trustworthiness, boosting their confidence to complete transactions.
The Fraud Landscape and the UPI Factor
Despite enhanced security, digital financial fraud is surging. In the first ten months of FY 2024-25, frauds amounted to ₹4,245 crore. Specifically, card and internet banking frauds quadrupled in FY24 to ₹1,457 crore. While EMV 3DS 2.0 has been shown to reduce CNP fraud by 57% globally, the rising numbers suggest fraudsters are shifting to social engineering, phishing, and other scams.
The payments landscape is also dominated by the Unified Payments Interface (UPI), which now accounts for a staggering 83% of all digital payment volume. With over 15 billion transactions a month, a huge portion of online payments bypasses traditional card-based 3DS flows. This has led to a decline in debit card usage and is forcing card networks to adapt, most notably by linking RuPay credit cards directly to the UPI network.
Challenges and Opportunities
Challenges
- User Experience: Poorly implemented 3DS can still cause transaction abandonment.
- Technical Integration: Migrating to 3DS 2.0 can be complex and costly for some businesses.
- Digital Literacy: Gaps in digital knowledge can make users vulnerable to scams that circumvent technical controls.
- International Compliance: Foreign merchants often struggle to comply with India’s unique and stringent mandates.
Opportunities
- Enhanced Security: Leveraging the rich data and biometric capabilities of 3DS 2.0 offers unparalleled fraud protection.
- The “Trust Dividend”: Merchants can leverage the high consumer trust in secure processes to build loyalty and drive conversions.
- Liability Shift: The shift of fraud liability to the issuer remains a critical financial protection for merchants.
- Innovation: There is immense opportunity to integrate AI/ML for even smarter risk assessment and adopt newer authentication methods like passkeys.
Conclusions and Recommendations
India’s 3D Secure landscape is a testament to the power of decisive regulation in building a secure and trusted digital economy. The mandates have fostered a unique environment where security enhances, rather than hinders, commercial success.
To navigate this landscape effectively, stakeholders should:
- For Merchants and Payment Gateways: Fully embrace and optimise EMV 3DS 2.0, focusing on a seamless mobile experience. Proactively communicate the security benefits to customers to capitalise on the “trust dividend”.
- For Banks and Issuers: Invest in advanced AI/ML-powered fraud detection systems to combat evolving threats that go beyond CNP fraud. Optimise challenge flows with user-friendly methods like in-app biometrics.
- For International Merchants: Prioritise compliance with RBI mandates as a non-negotiable cost of entry. Partner with local payment experts to navigate the regulatory and consumer landscape.
- For Regulators: Continue to refine regulations in dialogue with the industry and champion nationwide digital literacy campaigns to empower consumers, ensuring that human awareness keeps pace with technological advancements.
By balancing stringent security with user-centric innovation, India is not only securing its own digital future but also creating a compelling blueprint for other emerging economies to follow.
At a Glance
India’s digital payments are surging, with over 95% of banking transactions digitised. RBI mandates like 3DS 2.0, two-factor authentication, and tokenisation make security a driver of trust. Despite rising fraud and UPI dominance, 3DS adoption is growing, boosting conversions and consumer confidence. Stakeholders must optimise 3DS, use AI for fraud detection, and enhance digital literacy to sustain growth.
FAQs
- What is EMV® 3D Secure and why is it important in India’s digital payments?
EMV® 3D Secure is an authentication protocol that verifies online card transactions, reducing fraud and shifting liability to issuers. In India, it is mandatory and central to building consumer trust. - How has 3D Secure evolved from 1.0 to 2.0?
3DS 1.0 relied on redirects and static passwords, leading to cart abandonment. 3DS 2.0 uses 150+ data points for real-time risk assessment, enabling frictionless authentication with biometrics and OTPs. - What key mandates has the RBI introduced for online card transactions?
RBI requires mandatory 3DS for all online card payments, two-factor authentication (2FA), and card-on-file tokenisation to secure customer data. - How does India’s adoption of 3DS differ from other countries?
Unlike global markets where 3DS is optional, India enforces it strictly. Surprisingly, it boosts conversion rates by 30% as consumers see it as a sign of trust rather than friction. - What challenges and opportunities does 3DS adoption present?
Challenges include integration costs, digital literacy gaps, and international compliance. Opportunities lie in stronger fraud protection, consumer trust, liability shift to issuers, and innovations like AI-assisted risk assessment.