This error occurs when using a 3D Secure enabled credit card without using Sagepay Form.
Currently we only support 3D Secure through SagePay "Form" - in the Shopify gateway list in your admin, there are two SagePays listed - "SagePay" and "SagePay Form". You may have to deactivate your existing credit card gateway in order to select a new one.
It's an external payment solution that behaves similar to PayPal. Users will input their address details on your Shopify site as part of the checkout process, and then they get forwarded to SagePay to complete their payment.
Note that the "Encryption Password" is not the same as your SagePay account password. The encryption password is a combination of letters and numbers, generally about sixteen characters in length, automatically generated by SagePay.
SagePay only gives this key to you once, on a page that they recommend you print out for future reference. If you don't have this page, you can contact SagePay customer support: http://www.sagepay.com/contact_us
Once enabled, we recommend you try out a small charge with the new service to test it.