Building a Trusted Payment Chain: The Role of 3DS and Transaction IDs in Subscription Billing

Introduction

For subscription-based businesses, maintaining high authorization rates is essential for predictable recurring revenue, low involuntary churn, and consistent customer experience. Unlike one-time purchases, recurring transactions are Merchant-Initiated Transactions (MITs), meaning the customer is not actively present during each billing cycle. Because of this, issuers rely heavily on two signals to evaluate MIT risk:

1. Whether the customer completed Strong Customer Authentication (SCA) via 3D Secure (3DS) during the initial transaction, and
   
   
2. Whether the merchant correctly references the network-generated Transaction ID (Visa’s Transaction Identifier (TID) or Mastercard’s Trace ID) on all subsequent MITs.

This guide explains how 3DS and Transaction IDs work together, why they are critical for subscription businesses, and how merchants can implement them to increase long-term authorization success.

Why 3DS and Transaction IDs Matter for Subscription Businesses

The Revenue Impact of Authentication Failures

Recurring declines are not equivalent to one-time purchase declines. For subscription merchants:

• A failed renewal can immediately interrupt service
• Involuntary churn rises even when the customer’s card is valid
• Revenue becomes unpredictable as approval rates fluctuate
• Reacquiring churned customers is significantly more expensive than retaining them

Issuers face greater uncertainty when a transaction is MIT rather than CIT. They rely on evidence that the customer initially authenticated and consented to the stored-credential relationship. Proper 3DS authentication and the correct use of Transaction IDs provide that evidence (1)(2).

When either component is missing, recurring authorization performance suffers — especially in SCA-enforced regions.

Understanding 3D Secure Authentication

What is 3D Secure?

3D Secure (3DS) is a protocol used to authenticate the cardholder before authorizing an online payment. It involves three domains:

• Merchant/Acquirer domain
• Issuer domain
• Interoperability domain (card networks)

The modern standard, 3DS2, improves upon earlier versions by enabling:

• Frictionless authentication for low-risk transactions
• Rich data exchange to assist issuer decisioning
• Better mobile and in-app flows
• Support for biometrics

3DS is not an authorization tool — it is an authentication layer that proves the customer is genuinely initiating the transaction.

Regulatory Context: PSD2 and SCA

Under PSD2, Strong Customer Authentication (SCA) is mandatory for most electronic payments in the EEA and UK. SCA requires two of the following (3):

• Something the customer knows
• Something the customer has
• Something the customer is

3DS is the primary mechanism used by card networks to meet SCA requirements for card-not-present (CNP) payments.

A CIT performed without SCA weakens the trust chain for all subsequent MITs.

The Critical Link Between 3DS and Transaction IDs

How Authentication Affects Transaction IDs

During a 3DS-authenticated CIT, Visa and Mastercard assign a network Transaction Identifier within the authorization response:

• Visa: Transaction Identifier (TID) in DE 62.2 (4)
• Mastercard: Trace ID in DE 48.63 (5)

Merchants must store:

• 3DS authentication values
• TID (Visa)
• Trace ID (Mastercard)

These identifiers establish a chain of trust:

CIT (3DS Authenticated)

   → Network Generates TID/Trace ID

       → Merchant Stores Identifier

           → MIT Uses Identifier

               → Issuer Connects MIT to Prior SCA

Issuers evaluate whether a recurring transaction has a valid lineage back to an authenticated CIT. When MITs reference a valid TID/Trace ID, the issuer can confidently approve the charge (2)(5).

What Happens When Initial Authentication Fails?

If the initial CIT:

• Skips 3DS when required,
• Uses an outdated version of 3DS, or
• Fails authentication and proceeds with fallback logic,

…then subsequent MITs inherit a weak identifier. Even though the network generates a Transaction ID, the issuer cannot rely on it to confirm the cardholder previously authenticated.

This leads to:

• Higher long-term decline rates
• SCA enforcement declines (“authentication_required”)
• Inability to “fix” the relationship without customer re-authentication
• Elevated fraud-risk scoring by issuers

Subscription merchants must treat the first transaction as the foundation of the entire billing lifecycle.

Implementation Strategies for Subscription Merchants

Optimizing the Initial Transaction

To build a durable authentication chain:

1. Always use 3DS2 for initial subscription setup
This ensures compliance with SCA where required and provides issuers with high-quality authentication signals (3).

2. Capture both authentication results and transaction identifiers
Merchants should store:

• DS Transaction ID (3DS)
• Authentication method (frictionless or challenge)
• Visa TID or Mastercard Trace ID

3. Apply region-based authentication logic
EEA, UK, and certain French issuers strictly enforce SCA (3)(6).

4. Validate flows for edge cases
Test:

• Frictionless approvals
• Challenge flows
• Failed authentication
• Mid-session abandonment
  

Managing Recurring Transactions (MITs)

After establishing a valid CIT:

1. Always include the original TID/Trace ID
Missing identifiers are among the strongest predictors of MIT declines (5).

2. Correctly flag MIT subtypes
Networks require accurate MIT classifications such as recurring, installment, or delayed charge (1)(2).

3. Monitor authorization performance by segment
Analyze approval rates by:

• Issuer
• Region
• Authentication quality
• Transaction ID integrity

4. Build intelligent retry logic
Retries should consider:

• Issuer behaviors
• Card region
• Time-of-day/week patterns
• Whether authentication was ever completed
  

Subscription-Specific Implementation Examples

Example 1: Digital Media Platform A

Initial Subscription Flow

• Customer signs up for a monthly premium plan
• Merchant identifies card as EEA-issued → triggers 3DS2
• Customer completes authentication
• Merchant stores authentication results + TID/Trace ID

Monthly Renewal Flow

• MIT request includes:

• Recurring MIT indicators
• Original TID/Trace ID

• Issuer approves based on validated authentication chain
  

Example 2: Meal Kit Merchant B

Initial Subscription Flow

• Customer subscribes to weekly plan
• Authentication is triggered for relevant regions
• Merchant stores 3DS + identifier data
  

Weekly Billing Flow

• MIT includes correct identifiers
• If decline occurs, system initiates secure payment-update flow
• Customer friction is minimized through targeted re-authentication
  

The Impact of Recent Regulatory Changes

France’s Enhanced Transaction Monitoring

France has adopted a stricter interpretation of PSD2 enforcement. Issuers increasingly:

• Validate whether MITs originate from an SCA-authenticated CIT
• Reject MITs that reference identifiers tied to unauthenticated transactions
• Apply more aggressive risk scoring for subscription renewals (6)
  

This results in a higher frequency of:

• “authentication_required” declines
• First-renewal failures after onboarding
• Higher decline rates for variable-amount subscriptions

Conclusion

For subscription merchants, 3D Secure and Transaction IDs form the core infrastructure for achieving long-term payment success. Correctly authenticating the initial transaction and consistently passing network identifiers is essential for:

• Higher authorization rates
• Lower involuntary churn
• Compliance with PSD2 and SCA
• Reliable recurring revenue

As European and French SCA enforcement intensifies, maintaining a strong authentication chain and consistently referencing network identifiers will remain critical for subscription businesses worldwide.

Next Steps: To learn more about technical Transaction ID implementation, see A Practical Guide to Visa NTI and Mastercard Trace ID Mandates.

 

About the Authors

Devang Gaur is a Senior Product Manager (Payments & Risk), and Ashwin Das Gururaja is a Senior Engineering Manager (Payments & Risk) at Adobe, where they lead global initiatives to improve payment authorization performance, reduce fraud, and ensure compliance with evolving card-network requirements.

 

About Adobe

Adobe is a global leader in creativity and digital experience solutions. Through its Creative Cloud, Document Cloud, and Experience Cloud offerings, Adobe empowers individuals and enterprises to design, create, and deliver exceptional digital experiences.

 

References

1. Visa — Authorization & Reversal Processing Best Practices
   https://usa.visa.com/content/dam/VCOM/regional/na/us/support-legal/documents/authorization-and-reversal-processing-best-practices-for-merchants.pdf
   
2. Mastercard — Authentication Best Practices (MIT/Recurring Guidance)
   https://www.mastercard.de/content/dam/public/mastercardcom/eu/de/images/Heandler/Authentication-Best-Practices-v1.7-202010145.pdf
   
3. Visa — PSD2 SCA Implementation Guide (Europe & France)
   https://www.visa.fr/content/dam/VCOM/regional/ve/france/PDF/SCA/fr-visa-psd2-sca-implementation-guide-v4-0-28-02-23.pdf
   
4. Visa — Transaction Identifier (TID) Format & Usage Notes
   https://usa.visa.com/support/merchant/library.html
   
5. Mastercard — MIT/Recurring Transaction ID (Trace ID) Requirements
   https://pages.paymentsolutions.chase.com/rs/984-MQH-261/images/FILE_Mastercard_Authentication_Guidelines_EU_00333.pdf
   
6. European Banking Authority — PSD2 SCA Regulatory Interpretation
   https://www.eba.europa.eu