Authenticating cardholder data can help reduce e-commerce fraud

September 29, 2021

When the world shut down in 2020, commerce and payments rapidly went digital and fraudsters saw an opportunity to cash in. With e-commerce fraud on the rise, cardholder data authentication is a key to protecting digital transactions.


The U.S. e-commerce market is thriving, valued at $538 billion in 2020. Second only to China, the shift towards digital commerce in the United States has been accelerated by the pandemic and technological innovations that make these transactions seamless and simple.

But the exciting growth of the e-commerce market is threatened by the parallel rise of online fraud. In the last year alone, experts predict online retail fraud represents a $20 billion problem. Payment fraud began moving online when EMV technology was implemented back in 2015 in the U.S. for in-store purchases. EMV was so successful in decreasing card-present fraud that it pushed payment fraudsters to online transactions.

The COVID-19 pandemic further added to the rise of e-commerce fraud when internet traffic surged 60% and more employees began working remotely with fewer security controls in place. With commerce shifting to online environments more rapidly than ever, digital card-not-present transactions also increased and many environments were left vulnerable to fraudulent activity.

Chart showing that overall payment fraud events are increasing


Credit card chargebacks top e-commerce fraud

While fraudsters are developing sophisticated new scams like credential stuffing (mass payment authorization attempts to verify stolen accounts) and streaming potlucks (unauthorized sharing of streaming subscriptions), the most common and concerning type of online fraud is old school. Known as friendly fraud, this is when a cardholder claims a charge is fraudulent when in fact it was a legitimate transaction.

Friendly fraud accounts for up to 75% of all chargebacks. It’s an expensive type of fraud for merchants, who lose around 84% of all chargeback disputes – resulting in a loss of inventory and additional processing fees. Friendly fraud is quickly becoming a major problem for e-commerce retailers across all industries. Over the last three years, nearly 80% have seen an increase in friendly fraud attacks, while 68% blame the pandemic for a spike in their chargeback rates.

Chart showing the impact on your bottom line


Protecting digital transactions in the new normal

Research shows e-commerce sales in the U.S. rose nearly 32% in 2020, and the trend is only expected to continue throughout 2021 and beyond. Fortunately, businesses can take advantage of the rise in digital sales growth while protecting themselves from all types of transaction fraud, including friendly fraud.

According to a recent IBM study, companies with a formal security strategy fare better, experiencing almost a 50% reduction in the cost of a data breach event when one occurs. Yet, despite the strong evidence for advanced security measures, just 21% of businesses have fully deployed security automation/breach orchestration platforms. 

When developing a security strategy for digital transactions, it’s important that any protective tools also help to reduce false declines and unnecessary friction that impede a smooth transaction for online customers. This will support a fast, easy and convenient checkout experience that keeps those customers satisfied.

Chart showing two ways to protect cardholder data and authenticate transactions


Data authentication key to fighting e-commerce fraud

Thanks to innovations in payment technology, there are many ways businesses can fight fraud and protect cardholder data while offering customers seamless digital payment transactions. One of the best tools available today is EMV 3-D Secure. Improving upon the older 3-D Secure (commonly known as Verified by Visa or MasterCard SecureCode, among others), the updated version offers a smoother user experience and now adapts to a wide variety of devices, including mobile. 

EMV 3-D Secure uses 10 times more assessment datapoints than the previous version, allowing for risk-based authentication by the card issuing bank. After the cardholder submits their information on the merchant payment page, it is sent to the issuing bank, which decides if there is adequate data to determine if the purchase is being made by the true cardholder in order to authenticate and then authorize the cardholder’s transaction. 

EMV 3-D Secure also relies on enhanced frictionless security such as biometrics, which is easy for cardholders to use and means customers don’t have to remember complicated passwords. These extra security features decrease the overall risk of fraud and friendly fraud specifically, since merchants who accept the strongly authenticated transactions are less vulnerable to losing potential chargeback disputes. 

Businesses incorporating this new tool into their digital payments flow are already reporting impressive results, including checkout times reduced by 85% and cart abandonment lowered by 70%. By providing customers with simple, secure online checkouts, EMV 3-D Secure allows businesses to better protect against fraud, reduce chargeback liability, increase payment authorization rates and ultimately drive e-commerce revenue.


To learn more about the benefits of EMV 3-D Secure for your business and how to get started, read our white paper.




  4. IBM Average Cost of a Data Breach Study

Related content

What is financial fraud?

The mobile app to download before summer vacation

Webinar: Mobile banking tips for smarter and safer online banking

How-to guide: What to do if your identity is stolen

Money muling 101: Recognizing and avoiding this increasingly common scam

How to build credit as a student

Proactive ways to fight vendor fraud

Cybersecurity – Protecting client data through industry best practices

Webinar: How to stay safe from cyberfraud

How to choose the right rewards credit card for you

Higher education strategies for e-payment migration, fighting fraud

Authenticating cardholder data reduce e-commerce fraud

How to use credit cards wisely for a vacation budget

Insource or outsource? 10 considerations

Credit: Do you understand it?

Automate accounts payable to optimize revenue and payments

Using merchant technology manage limited staffing

What kind of credit card does my small business need?

5 unique ways to take your credit card benefits further

Dear Money Mentor: How do I begin paying off credit card debt?

Cybercrisis management: Are you ready to respond?

Tailor Ridge eBill case study

How to keep your assets safe

5 tips to help you land a small business loan

How RIAs can embrace technology to enhance personal touch

Learn to spot and protect yourself from common student scams

Money Moments: How to finance a home addition

New technology streamlines M&A transactions

What corporate treasurers need to know about Virtual Account Management

Managing the rising costs of payment acceptance with service fees

3 emerging technology trends for bankers

How to spot an online scam

CFO survey: A shifting focus on ESG in business

CFO report: Driving growth via new business models and technology

CFO insights: Leading the recovery for sustainable growth

The ongoing evolution of custody

How small businesses are growing sales with online ordering

Webinar: Approaching international payment strategies in today’s unpredictable markets.

10 ways a global custodian can support your growth

Delivering powerful results with SWIFT messaging and services

Webinar: How to fight off fraud

Webinar: Protect yourself or your loved ones from elder fraud

Increase working capital with Commercial Card Optimization

Fraud prevention checklist

5 reasons why couples may have separate bank accounts

5 tips to use your credit card wisely and steer clear of debt

4 ways to outsmart your smart device

How you can prevent identity theft

5 steps to selecting your first credit card

7 steps to keep your personal and business finances separate

How to spot a credit repair scam

Myth vs. truth: What affects your credit score?

Test your loan savvy

Should you give your child a college credit card?

6 essential credit report terms to know

What applying for store credit card on impulse could mean

How to improve your credit score

5 tips to use your credit card wisely and steer clear of debt

Luxembourg's thriving private debt market

Integrated receivables management solution supports customer focus at MSC Industrial Supply

Hospitals face cybersecurity risks in surprising new ways

Private equity and the full-service administrator

Flexibility remains essential for public sector workforces

Webinar: Cash management strategies for higher education

Empowering managers with data automation and integration

Hybridization driving demand

Supply chain analysis: Merging technology and commerce

Easier onboarding: What to look for in an administrator

The secret to successful service provider integration

5 steps you should take after a major data breach

Why KYC — for organizations

How to identify what technology is needed for your small business

Key considerations for online ordering systems

Planning for restaurant startup costs and when to expect them

Staying organized when taking payments

How does an electronic point of sale help your business keep track of every dime?

How iPads can help increase efficiency in your salon

Tools that can streamline staffing and employee management

Business credit card 101

Do I need a credit card for my small business?

How to accept credit cards online

BEC: Recognize a scam

Fight the battle against payments fraud

The latest on cybersecurity: Vulnerability testing and third-party software

The password: Enhancing security and usability

3 timeless tips to reduce corporate payments fraud

The surprising truth about corporate cards

White Castle optimizes payment transactions

4 tips for protecting your business against Coronavirus-related scams

The latest on cybersecurity: Mobile fraud and privacy concerns

The benefits of a full-service warehouse custodian

3 questions to ask your equity, quant and CTA fund administrator

Webinar: A closer look at U.S. Bank AP Optimizer

The future of financial leadership: More strategy, fewer spreadsheets

Tech tools to keep your restaurant operations running smoothly

How to improve digital payments security for your health system

Enhancing liquidity management: 4 benefits of visibility

Webinar: Fraud prevention and mitigation for government agencies

Webinar: CRE Digital Transformation – Balancing Digitization with cybersecurity risk

Webinar: CRE technology trends

Webinar: Robotic process automation

Webinar: CRE treasury leader roundtable

Start of disclosure content

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.