The Payments Association of South Africa (Pasa) is moving ahead with plans to fine merchants that have failed to comply with 3-D Secure, a new layer of verification for online payments. And it’s got some online retailers hot under the collar.

While not everyone’s happy, Pasa executive for strategy and communication Arif Ismail says 3D-Secure is in consumers’ best interest.

3-D Secure is an additional layer of security for online purchases, or for when a user’s card is not physically present at the point of sale.

Previously, the digits printed on the back of the card — the card verification value — would have been enough to conclude a payment.

Now when a customer gives his card information to an e-commerce retailer, an additional code is required to conclude the transaction.

This usually takes the form of a one-time Pin. Once the customer has inserted the correct Pin, the merchant is given the go-ahead to proceed with the transaction. MasterCard users know it as SecureCode and Visa calls it Verified by Visa.

Ismail explains that 3-D Secure is essential in combating online fraud. He says the use of magstripe cards led to fraud when these cards were skimmed and counterfeit cards produced. While the introduction of chip cards reduced fraud, fraudsters moved with the technology and simply shifted their focus to online transactions.

“Since 2011, the modus operandi has shifted from card-present transactions to online purchases,” he says. This led to a spike in online fraud as all that fraudsters needed were the numbers on the back of a card to verify the transaction.

The South African Banking Risk Information Centre reported a 23% increase in credit card fraud in 2014 of R453,9m, from R366m in 2013.

Ismail says there are between 7 000 and 10 000 e-commerce merchants in South Africa. “Pasa has been mandated by the South African Reserve Bank to organise and manage the country’s payment system. This includes managing the safety and security of the payment system. It’s not healthy for the South African online system to be facing such threats from fraud. We had to consider what we could do from a responsible regulatory perspective to protect both the customer and merchant. We decided it was time to mandate the use of 3-D Secure.”

NetFlorist CEO Ryan Bacher is one of those who is not thrilled about being forced to implement 3-D Secure. “We’ve only gone live with it in the last few days and it is still very much in the test phase. We will be compliant, although it is being forced upon us”.

Bacher says 3-D Secure is not the ideal option for e-commerce retailers. Customers often cancel online purchases if they don’t receive the verification code timeously or fail to see the request for the code.

However, Ismail says 95% of South African e-commerce retailers have implemented 3-D Secure.

Pasa CEO Walter Volker says 3-D Secure is mandatory for all e-commerce merchants and is not being selectively implemented. “However, it is being possibly selectively adhered to by isolated e-commerce merchants, who are subject to penalty fines as from 1 March.”