When selling prevails over security, the focus is on suspecting fewer payments of being fraudulent (type I, false positives). Conversely, when security prevails over selling, the focus is on having fewer frauds undetected (type II, false negatives)

The e-commerce services that optimize for selling

The e-commerce services who are more interested in reducing the number of payments thought to be fraudulent when they are not (type I, false positives [1]) are high margin merchants, issuers when 3D Secure is enabled, and acquirers and PSPs when 3D Secure is disabled.

The merchants that have a high margin tend to prefer to absorb a few fraud cases, rather than impacting most of their customers.

Issuers have limited incentives to prevent payment fraud when 3D Secure is disabled.

The incentives to prevent payment fraud are limited when 3D Secure is enabled because issuing banks are liable.

The e-commerce services that optimize for security

Those who need to reduce the number of undetected frauds (type II, false negatives [1]) and need security are low margin merchants, marketplaces, issuers when 3D Secure is enabled, and acquirers and PSPs when 3D Secure is disabled.

Low margin merchants are exposed to the risk that fraudulent payments materialize as chargebacks. Therefore, they tend to favor secu- rity over selling.

Marketplaces aim to be stricter when processing payments so that sellers trust the platform and continue to do business there.

Because issuers are liable in case of fraud when 3D Secure is enabled, issuers favor security over selling.

When 3D Secure is disabled and when the merchant cannot refund the principal, then acquirers and PSPs are exposed to the chargeback risk.

Reference

  1. Type I and type II erros; 2017.
  2. Wikipedia. Type i and type ii errors
  3. Photo