Not necessarily. It might actually store multiple versions of your password as A.....B...C (where . means some known-to-them character, basically salt), ..A....B.C., etc, basically all the combo-of-3 templates encoded as PWs. Then it asks for one of them and recreates the template before comparing.

Still crappy entropy, though. An eight char password has 56 combinations of 3 positions each, so with N character choices that's 56 * N^3 vs. N^8 the normal way. Gets much worse in comparison with longer passwords.