How authentication protects digital payments

• Protect your payment ecosystem
• What is authentication?
• How does authentication work?
• How can merchants and issuers use authentication?
• What authentication tools does Visa offer?
• Use cases
• FAQs

Authentication sits at the start of every payment journey, confirming that a customer is who they claim to be before a transaction is approved. It helps prevent declined payments, abandoned checkouts and the loss of customer trust. And because fraud prevention is a collaborative effort, when merchants, issuers and payment networks share data, everyone gains a clearer, more accurate view of each transaction — therefore closing the blind spots that fraudsters exploit.

Tools such as 3D Secure (3DS) and tokenization are an essential part of protecting the payments ecosystem, as they strengthen fraud detection and fraud prevention strategies while keeping checkout experiences smooth and secure. Tokenization also plays a key role in enabling merchants to meet Payment Card Industry Data Security Standards (PCI DSS) compliance requirements by replacing sensitive card data with secure digital identifiers.

Together, strong customer authentication and tokenization can help prevent fraud, enhance authorization success and improve conversion. In this article, we’ll cover what authentication involves and share practical steps you can take now.

Authentication is the process of verifying that a person or entity initiating a transaction is genuine. In digital commerce, it confirms that the online purchaser is the true cardholder before a payment is authorized. In this way, it’s distinct from authorization, which determines whether a transaction can be approved. In other words, authorization asks: ‘Can we accept this payment?’ while authentication asks: ‘Is the person using the payment method valid?’

By validating a person or entity’s identity, authentication reduces the risk of fraud and false declines while improving trust and approval rates. That’s why effective authentication depends on collaboration, with merchants issuers, and payment networks all sharing data and intelligence to make more accurate decisions.

Authentication is a critical foundation for secure online payments, supported by technologies such as 3D Secure (3DS) and its Data Only feature, risk-based authentication and tokenization.

What is cardholder authentication?

Cardholder authentication is the process of verifying that the person making an online purchase is the legitimate cardholder. It confirms identity before a payment is authorized, protecting both merchants and consumers from payment fraud. The most widely used method of verifying a customer’s identity during eCommerce transactions is 3DS. Authentication can happen smoothly in the background or through a quick verification step, such as a one-time password, biometric check or app confirmation. Visa’s EMV 3DS program — Visa Secure — is the global standard for authenticating card-not-present payments. It uses enhanced data and risk-based authentication to assess each transaction in real time, only adding an extra verification layer when it’s needed.

What is tokenization in payments?

Tokenization is the process of replacing a customer’s sensitive payment information — most commonly the primary account number (PAN) — with a unique digital identifier, known as a token. This token can be used to process payments without exposing card data, which helps reduce the risk of payment fraud and data breaches.

Tokens can be restricted to specific merchants, devices or transaction types, so even if intercepted, they cannot be reused outside of their intended context. Tokenization also simplifies ongoing payment management. For example, when a card is reissued or a device changes, the token can be updated automatically, avoiding disruptions and the requirement for customers to re-enter their card details.

Globally, 60% of merchants use tokenization in payments,¹ and by decoupling sensitive data from the payment flow, they can better protect customer information, meet compliance requirements and securely manage cardholder credentials while maintaining smooth, reliable payment experiences.

Authentication in eCommerce verifies that the person initiating a payment is the legitimate cardholder, creating a collaborative fraud defense among merchants and issuers within the overall payment ecosystem. Take Visa Secure (Visa’s EMV 3DS program) and tokenization, where merchants provide transaction data, Visa facilitates secure information exchange and issuers can make informed identity decisions.

Authentication operates in two flows: frictionless and challenged. In a frictionless flow, low-risk transactions — determined by device, location, purchase history and behavior — are verified behind the scenes with no additional steps for the customer. In a challenged flow, high-risk transactions trigger the requirement for extra verification, such as a one-time password, biometric check or app confirmation. This protects merchants and consumers while maintaining convenience for the majority of purchases.

What are the benefits of strong customer authentication for eCommerce?

Strong customer authentication provides advantages for merchants, issuers and consumers. Merchants see measurable reductions in fraud and improvements in transaction approval rates. For example, Visa Secure with EMV 3DS outperforms non-3DS transactions for both authorization and fraud when normalized for risk.²

Tokenization further strengthens security by replacing sensitive card data with digital identifiers or tokens, helping to reduce breach risk, simplifying Payment Card Industry Data Security Standards (PCI DSS) compliance and supporting automatic updates when cards are reissued. Merchants also benefit from liability protection: transactions that are fully authenticated (ECI05) or attempted (ECI06) with a proper Cardholder Authentication Verification Value (CAVV) can help them avoid fraud-related disputes.

For issuers, authentication provides richer transaction data to make smarter, real-time risk decisions, escalating only when necessary, accommodating trusted customers faster and complying with regulatory obligations like strong customer authentication. In this way, customers can enjoy faster, frictionless checkouts with fewer interruptions.

Overall, Visa Secure and tokenization helps to create a secure, seamless and efficient digital payment experience, reducing fraud while improving conversion rates and authorization outcomes.

Merchants and issuers can adopt several strategies to maximize the benefits of authentication and identity management tools:

1. Utilize strong customer authentication: Requiring two or more identity factors, strong customer authentication is mandatory in some markets (such as the European Union under Payment Services Directive 2 (PSD2)) and it’s a best practice precaution even in regions where it’s not a requirement. Around 40% of merchants globally have already implemented strong customer authentication, which helps issuers confidently verify the payer’s identity. This can boost authorization rates and ensure they meet regulatory and card-brand requirements.
   

   
   What to do: Review your checkout flows to ensure strong customer authentication readiness. Use friction-minimizing methods such as biometrics or device-based authentication to protect customers without adding unnecessary steps.

2. Implement tokenization: Tokenization replaces sensitive card data with secure digital identifiers, protecting stored credentials, improving authorization rates and reducing soft declines. The industry is moving from gateway/processor tokens toward network tokens, issued by the card networks themselves.

   What to do: Work with your payment processor or acquirer to migrate stored credentials to a tokenized environment, prioritizing network tokens.

3. Support Risk-Based Authentication (RBA): Authentication is effective only if issuers can evaluate transaction risk in real time. RBA for Visa Secure allows issuers to determine the optimal flow — frictionless for low-risk transactions or challenged for high-risk ones — based on device history, behavior and transaction context.
   

   
   What to do: When selecting an acquiring partner or bank, confirm their RBA capabilities, frictionless-flow percentages and ongoing optimization efforts to reduce false declines.

4. Optimize data flows: Authentication and tokenization deliver maximum return on investment when rich transaction data is shared. This includes device information, customer history, shipping address and merchant category codes. The more context that the issuer receives, the higher the chance of achieving frictionless authentication and successful transactions.

   
   What to do: Monitor frictionless vs challenged flows; higher frictionless rates correlate with higher authorization success. Review how challenges are presented to customers and how quickly transactions are processed. Use dashboards to track outcomes by issuing bank, geography and device type, and work with your payment provider to optimize data sharing.

5. Measure, improve and iterate: Treat authentication and tokenization as ongoing optimization efforts as opposed to one-off projects. Key KPIs to track include: authorization rate (overall and for tokenized vs non-tokenized transactions); decline rate (soft declines, false positives); fraud metrics (chargebacks, disputes, losses); ratio of frictionless vs challenged flows; and token adoption and lifecycle performance.

   What to do: Set quarterly targets, monitor performance and refine flows to continuously reduce fraud, improve approval rates and enhance customer experience.

Authentication is a critical component of fraud prevention, and Visa provides a comprehensive suite of solutions to help merchants and issuers protect payments while optimizing the customer experience. Visa’s authentication and identity portfolio spans cardholder authentication, token-based identity binding and identity risk scoring — delivered through flexible, layered solutions that can be tailored to each business.

Visa Secure (Visa’s EMV 3DS program): Visa’s global program for merchant and issuer authentication enables secure, data-led authentication by facilitating the exchange of rich transaction data, helping issuers verify that the cardholder is legitimate before authorization. By providing enhanced context for card-not-present transactions, Visa Secure enables smarter risk decisioning while maintaining frictionless experiences for trusted customers. Merchants who implement Visa Secure and properly authenticate transactions (ECI05) or attempt authentication (ECI06) may also gain liability protection in the event of fraudulent disputes.

Visa Consumer Authentication Service (VCAS): This service supports issuers in implementing their 3DS authentication strategies without requiring full internal infrastructure. The hosted, data-driven solution uses a VCAS score and rule-based decisioning to determine whether a transaction should be challenged or approved frictionlessly. Visa also offers managed services, providing expert risk guidance to optimize issuer authentication flows.

Visa Token Service: This service replaces sensitive PAN data with secure digital identifiers during storage or payment, such as for digital wallets, card-on-file transactions or in-app purchases. Network tokens are context-specific, helping to reduce the risk of data compromise if intercepted.

Merchants can benefit from reduced breach liability, simplified lifecycle management for stored credentials, and a smoother customer experience when cards are lost, stolen or reissued. Tokenization via Visa Token Service is a critical element for maintaining secure, frictionless payments at scale.

Visa Provisioning Intelligence (VPI): A risk score powered by AI for the token provisioning process, assessing the probability of fraud at the moment a token is requested — for example — when a card is added to a digital wallet. By flagging high-risk provisioning requests, VPI helps prevent fraud before it begins.

Visa Account Attack Intelligence (VAAI): Visa Account Attack Intelligence (VAAI) Score identifies sophisticated enumeration attacks for CNP transactions in real-time and allows Visa and partners to use this information for authorization decisioning.

Tokens keep real card details secure

By replacing sensitive data with unique digital identifiers — or tokens — real card details are not exposed in the payment flow. As a result, tokenized payments have helped save $650 million in fraud losses over the past year, increased global approval rates by six basis points and reduced fraud by up to 60%.³

Unlike gateway tokens, Visa’s network tokens are not tied to a specific provider, so not only do they support merchants of all sizes to secure payments, reduce fraud and improve authorization success, but they also give merchants the flexibility to switch payment vendors and manage tokens independently while helping to maintain compliance and security.

Leveraging AI-driven risk scoring with VCAS

Complementing Visa Token Service, VCAS uses AI-driven, network-agnostic risk scoring to help issuers make faster, more accurate authentication decisions. This minimizes unnecessary customer challenges and reduces friction at checkout.

For example, a leading Peruvian financial institution was facing rising friction in its cardholders’ eCommerce activities, as a result of high challenge rates and failed authentications. Determined to improve the cardholder experience without compromising security, the issuer turned to VCAS for support. By leveraging AI-driven risk scoring and shared data intelligence from Visa’s network, the bank could assess each transaction in real time and decide when additional verification was truly necessary. As a result, the issuer saw a 30-point reduction in challenge rates and a 6% improvement in overall authentication success. By embedding VCAS into its authentication strategy and aligning with Visa best practices, the institution created a smoother, more trusted checkout experience for its cardholders.