Strong Authentication Doesn’t Always Mean Strong Conversion
Sorry to break it.
When a customer tries to make an online payment, two things need to happen behind the scenes:
⚪#Authentication – confirming the person making the payment is who they say they are (e.g. through a password, biometric, or one-time passcode via 3DS).
⚪#Authorisation – checking with the bank that the transaction is valid and the funds are available.
These two steps happen in sequence but they’re not the same, and crucially, they’re not always linked in the same way across markets. Just because a transaction passes 3DS doesn’t mean the authorisation will follow.
Let’s take the examples of 2 significantly contrasting markets when it comes to payments.
◾In the UK, and most of Europe, regulations (like PSD2) require Strong Customer Authentication (SCA). This means banks must make sure the customer is properly verified before approving a transaction.
Because of this mandate:
✅The authentication process is better integrated into the checkout flow
✅Banks are more likely to approve a payment if authentication was successful
✅The whole system i.e. merchants, banks, and platforms have invested in making the journey smoother for customers
As a result when the authentication succeeds, the authorisation usually follows because the risk checks are cleared during the authentication. That’s in though as there’s clearly more flavour to this practice.
Anyway, in the US, It’s a different story as there’s no regulation that forces banks to follow the same process. That means that even if the customer passes authentication (e.g. via 3DS), the bank might still decline the payment. Issuers can often make their decision based on internal risk models, not whether the user was authenticated.
As a result:
❌There’s less incentive across the system to optimise how the authentication and authorisation work together. So while the authentication success is improving in the US, it doesn’t always lead to more approvals.
For merchants, the frustration is that it adds friction for the customer with extra steps and slower checkout in the name of security, but doesn’t always deliver better approval rates in return.
Stripe conducted an interesting study on this: https://stripe.com/blog/surprising-findings-from-our-analysis-of-3ds-transactions-in-the-us?utm_source=chatgpt.com
#paymentexperts any perspectives to add🎤?
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